Banks compete for loyalty, writes Jeff Salway
Royal Bank of Scotland is launching a current account offering cashback on household bills, as it bids to stem the flow of customers switching to rival banks.
The new Reward account, available from 12 October, comes with a monthly fee but pays 3 per cent on certain bills paid by direct debit.
However, customers in some accounts face new fees on arranged overdrafts, in addition to the interest charges.
The product is similar to the Santander 123 account, which despite recent fee hikes has proved hugely popular since hitting the shelves three years ago. The new RBS account, unveiled today, arrives just weeks before the Competition and Markets (CMA) publishes a provisional report on an investigation into the current account market.
The household bills eligible for the 3 per cent cashback include council tax, gas, electricity, telephone, TV and broadband, provided they are paid from the account by direct debit. There’s no ceiling on the amount of cashback that can be paid, and the rewards can be cashed in, traded for shopping vouchers or donated to charity.
Andrew Hagger, personal finance expert at Moneycomms.co.uk, suggested the bank’s move could be in response to figures showing that RBS last year saw 39,000 more customers switch away than it attracted.
“The top two performers in the switching table by a long way are Halifax and Santander – both offer rewards – and maybe it’s now being recognised by other banks that you need to offer tangible rewards to loyal customers to persuade them to stay,” said Hagger.
Barclays also launched a new reward programme in April, on which customers pay a £3 monthly fee but can earn up to £7 a month in return.
The new RBS deal is good news for customers with £200 or £300 worth of qualifying direct debits that can earn them a net £3 or £6 a month for doing nothing, according to Hagger. But it’s not so great for those who regularly go overdrawn. The Reward and Reward Silver accounts – currently the Select and Select Silver – still have a £6 arranged overdraft fee, charged when customers go over their interest-free buffer, and the interest rate is 18.28 per cent.
The Reward Platinum and Reward Black – the rebranded Select Platinum and Select Black accounts – will now have a £6 arranged overdraft fee too, where currently there isn’t one. The interest charges are 18.28 per cent on the former and 13.96 per cent on the latter.
“You may be better off looking elsewhere if you’re someone who pops into the red for a couple of days each month, as the cost could wipe out all or most of your rewards benefit,” said Hagger.
All the accounts have monthly fees, ranging between £3 and £28, leaving the Select, Youth, Student, Graduate and Basic products as the only fee-free RBS current accounts.
Unlike the Santander account, which pays up to 3 per cent interest, there’s no eyecatching in-credit interest rate to pull in cash savers.
However, Santander attracted criticism last month when it raised the monthly fee on its 123 account from £2 to £5, taking effect in January and which will take the annual cost from £24 to £60.
“The problem comes as in the case of Santander where the monthly fee gets increased further down the line but the reward levels don’t move in line,” said Hagger. “The monthly fee income once in play is something else, along with the interest rate charged, that the bank can tweak to its advantage at a later date.”
News of the launch came as Which? called for greater transparency and fairness in current account charges, in its response to the CMA inquiry into current accounts. The CMA’s wide-ranging remit allows it to put forward proposals including a universal overdraft charging structure, portable account numbers and measures forcing banks to sell some of their branches.
The consumer group wants poor current account providers to be named and shamed and said transparency of charges must be improved to help customers compare accounts.
Richard Lloyd, executive director of Which? said: “When it reports next month the CMA should propose changes that will incentivise banks to better respond to the needs of their customers.”