Banks targeting clients with account deals to boost revenues

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BRITAIN’S high street banks are targeting consumers with cash incentives and savings deals to tie them into their current accounts even as they come under fire for failing to offer consumers enough choice.

Banks are seeking to boost revenues hit by rulings over payment protection insurance (PPI) and overdraft charges and increasingly view current accounts as essential in cross-selling more lucrative products.

Switching levels remain low, however, despite widespread antipathy towards the banking sector’s scandal-hit big names.

Three-quarters of current accounts are provided by just four high street banks – Royal Bank of Scotland, Lloyds, HSBC and Barclays – and their dominance is held partly responsible by the OFT for a lack of switching by consumers.

The difficulty of comparing accounts on a like-for-like basis is another factor, while there’s a lingering perception of switching as a complex and difficult process.

Yet there remain plenty of reasons to shop around. A handful of new entrants to the high street banking market are set to boost competition over the coming months, while a new switching system is set to make it easier for disgruntled customers to put their money where their mouth is. (See the box accompanying this story for more on this).

That’s why some banks are trying to tie more customers into their current accounts by offering sweeteners and eye-catching promotions. They’re particularly eager to use fee-based packaged current accounts to cross-sell customers into more revenue-rich products, including mortgages and insurance.

Bank of Scotland is again offering a £100 cash incentive to new current account customers, while switchers also benefit from a fee-free planned overdraft for the first 12 months. Not to be outdone, HSBC-owned First Direct has launched a £125 cash incentive for people opening its 1st Account who haven’t previously held any account with it.

To qualify, customers have to pay at least £1,500 into the account for the first three months and transfer two or more direct debits.

Elsewhere, those opening the new premium current account at M&S between now and 28 February can claim at £100 M&S gift card. It’s open to anyone opening the account and not just people switching from other accounts. However, experts warn that consumers risk long-term losses if they accept cash bribes to switch into products that don’t suit their needs.

If you’re frequently overdrawn, for example, the Bank of Scotland reward account may land you with charges that soon wipe out the joining bonus. Its current and reward current accounts charge £1 a day for planned overdrafts up to £2,000, at which point the daily charge doubles. Unplanned overdrafts cost £5 a day.

Cash incentives aren’t the only weapon being employed by the banks, however.

Some are taking advantage of the meagre returns available from savings accounts – their own included – by offering decent interest rates on their current accounts.

As the returns on normal savings accounts have plunged – due largely to the impact of the Treasury’s funding for lending scheme (FLS) – the interest rates on current accounts have become a bigger selling-point.

The top easy access account that doesn’t include an introductory bonus pays just 2.3 per cent, according to Moneyfacts. Just three others pay more than 2 per cent interest before tax.

Some current accounts compare well when it comes to savings interest.

Santander’s 123 account pays 2 per cent on balances between £2,000 and £3,000 and 3 per cent on balances between that and £20,000.

The Bank of Scotland reward account pays out £5 a month, provided at least £1,000 is deposited, while its “classic with Vantage” account – also available through Lloyds TSB – pays 2 per cent.

Outside the top easy access and current accounts there’s not much to separate the savings deal on offer. So should it be a factor in moving account?

Not at the moment, according to Sylvia Waycot, spokeswoman for Moneyfacts.

“The traumatic fall we have witnessed in savings rates has left the current accounts looking quite generous, but there are still some easy access accounts that beat them and would be a better option to house larger sums of money,” she said.

Waycot added another good reason to be wary of using a current account as your main cash savings option.

“If you have a large sum in your current account it may be better to move it to a savings account, not just because the interest will be slightly better but also from a safety point of view. If you lost your debit card, you want to put as little money at risk as possible.”

The other option for savers able to deposit a certain amount of money each month is a regular savings account. These are generally available only to customers also holding the bank’s current account, but the return on cash is the best on the market right now.

The First Direct regular saver account has been paying 8 per cent gross to its current account users, adding to the temptation for those considering taking up its £125 incentive. However, it was taken off the shelves yesterday, temporarily according to the bank.

HSBC’s regular saver pays 6 per cent gross to customers in its premier, advance or passport accounts. The rate falls to 4 per cent for those with its normal current account. Savers have to pay in between £25 and £250 a month to qualify.

Again, however, think about the bigger picture before allowing an attractive savings deal to dictate who you take your current account business to, not least because those rates can quickly become less attractive, advised Andrew Hagger, personal finance expert at

“If you’re going to switch bank account you need to find one that works for the way you run your finances, as there’s not one account that suits all,” he said.