Next bank charge? It might be for the exit

LLOYDS TSB is braced for a possible exodus of current account customers as details of changes to its overdraft charges are sent out. From 2 December customers of the bank, part of taxpayer-backed Lloyds Banking Group, will have to pay a monthly usage fee if they go overdrawn even when they have permission, plus an interest charge on overdrawn borrowing.

Lloyds - which recently revealed that it received an average of 1,850 complaints each working day in the first half of this year - is far from alone in restructuring its overdraft costs. Similar moves in recent months have helped shine the spotlight back on the issue of current account switching.

About two-thirds of current account customers have been with the same bank all of their adult lives and a mere 6 per cent of bank customers changed provider last year, according to the Office of Fair Trading, despite widespread dissatisfaction with service levels at the biggest high street banks.

As big changes are made to current account charges, consumer groups are urging current account holders to be more proactive in securing the most suitable banking deal for their needs.

The Lloyds TSB change is good news for those going overdrawn without permission, as the monthly unauthorised fee of 15 will be removed. It is being replaced by a 5 usage fee for any month in which a customer makes use of a planned or unplanned overdraft. Daily fees for unauthorised overdrafts, and the number of times they can be applied in one month, are also being reduced. There will be a 10 monthly buffer before charges are levied. Lloyds will also stop paying interest on current accounts to customers in credit.

Kevin Mountford, head of banking at moneysupermarket.com, said: "If you go into the red without approval you will now be better off as the unplanned fee is being reduced from 15 to 5, but unfortunately those who go into their authorised overdraft will now pay an additional 5 for the privilege on top of the 18.9 per cent interest you are already charged."

The changes are similar to those made last December by Bank of Scotland, also part of Lloyds Banking Group, when it introduced daily overdraft charges.

The idea was to improve transparency but the backlash was evident in the letters and e-mails flooding into The Scotsman paper to complain.

The Lloyds move has already prompted some customers to reconsider their banking choices.

Louise Fairbairn, of Edinburgh, is a freelance journalist so her income level can vary from month to month. Fairbairn, 35, has been a Lloyds TSB current account customer for 16 years but the potentially costly implications of the bank's new overdraft charges mean she is now looking for a new home for her money. "I was aware of the pressure being put on banks to limit the charges on unplanned overdrafts, but as my overdraft is planned I didn't think this would affect me," she explained.

"It wasn't until I got a letter from Lloyds that I realised I would be charged a fee on top of overdraft interest each month I went into the red."

Not only that, but the end of interest payments on balances means there is a lot of stick and very little carrot for customers, according to Fairbairn.

"I'm now looking at changing my current account, though there isn't much choice," she said.

"Many banks have made similar moves, and there is less choice again when you factor in things like branch availability and what group owns which brands."

Fairbairn is not alone in feeling compelled to change banks after years of loyalty, as our case study underlines. But the incidence of wswitching is notoriously low when compared with that for other financial products and services, including insurance and energy supply.

One problem is the perception that all banks and building societies are as bad as each other, but there is evidence to suggest that when it comes to customer service in particular, smaller is better.

The annual round-up of the customer satisfaction surveys carried out by consumer group Which?, published recently, found Lloyds Banking Group brands in three of the bottom five places in its ranking of customer service levels. The top half of the table was dominated by the smaller brands in the sector, while the five biggest brands all were all in the bottom ten out of 31 banking brands.

This suggests there is ample choice for those looking for an alternative to their existing bank, but recent research suggested the average current account holder stays with their bank longer than their partner.

Mountford said: "I very much doubt that this is due to the fact we are happier with banks, but more to do with the fact that the perception is that divorce is easier than switching accounts. Not true, but the banking industry faces a real challenge if they are to convince us otherwise."

The perceived hassle of changing banks is a big barrier to greater switching activity. However, industry rules mean it is easier than it used to be, while many banks now have dedicated switching teams. A recent survey by Bacs payment services found that 81 per cent of people who have switched in the past five years or are attempting to switch have been pleased with the overall process.

When you've decided you want to switch and identified a suitable alternative for your needs - i.e. found an account with low overdraft costs if you're frequently overdrawn - take two forms of ID, including one with a photo, to the new current account provider. It will ask you to fill in a new account application and a transfer form.

Banks and building societies should take responsibility for ensuring that your existing payments, such as direct debits, are transferred from your existing provider, although this can take up to a month. Consequently it's worth leaving some money in your old account to cover any payments in the event of delays or problems. Only close your old account once you know everything has been successfully transferred to the new one.