Throwing a switch to light up the way to a better current account deal

Proposed new rules aimed at boosting the number of people switching current account were among the recommendations set out by the Independent Commission on Banking (ICB) last week.

But while the changes put forward by the ICB may not be in place for some time, experts believe there’s already no excuse for disgruntled bank customers to be deterred from taking their custom elsewhere.

The ICB estimated that loyal customers who stay with their bank through thick and thin are losing out on about £40 a year. And it’s not as if the banks aren’t pulling out the stops to snare more current account customers, albeit only those they envisage as being profitable.

Almost three-quarters of us have never switched account, yet with almost 200 from which to choose there’s a strong chance that there’s a more suitable product for your needs than the one you’re in.

The ICB wants banks to boost switching by introducing a redirection service that would smooth the process by sending all payments to and from an old account into a new one.

But the switching process is not the problem, some banking experts claim, following improvements in recent years that have seen the main banks set up dedicated teams to handle the entire process, including ensuring regular payments are switched.

So how do you go about switching account? In short, once you’ve done your research and decided which bank you want to go to, it then does all the work.

Andrew Hagger, below, head of communications at Moneynet, said: “Your new bank will manage the process for you. However, if you encounter any problems along the way, get in touch with them straight away – they won’t want to mess up on their first opportunity to impress and should bend over backwards to iron out any hiccups.”

Once an application for a new account is approved, the new bank should ask the old one for details of any regular payments within three working days.

The latter then has another three working days in which to supply that information before the two banks then agree a date on which the balance will be transferred. However, evidence suggests the time taken for this to happen can vary.

In theory, new accounts should be open within ten working days of an application being rubber-stamped.

Michelle Slade, of Moneyfacts, said: “The time it takes will vary depending on how many regular payments need switching. If its just one or two, the switch could take just a week, but typically it takes two or three weeks to complete the process.”

But the opposition to switching goes beyond the actual process, with a lingering perception among bank customers that there’s no difference between bank offerings. In a Moneynet survey earlier this year, more than a third of bank customers said they saw no point in switching because they felt all banks were the same.

That’s not necessarily the case, however, particularly when it comes to comparing current accounts.

As banks try to make up for the loss of revenue from high overdraft charges and payment protection insurance sales, they are working increasingly hard on luring customers into fee-based packaged accounts. With 62 on the market these products – which charge an average monthly fee of £15.58 – now outnumber traditional in-credit current accounts, according to Defaqto.

David Black, head of banking of Defaqto, said: “Providers are keen to upsell their products. So if, for example, you have a free-in-credit current account your provider may occasionally ask if you would like to change to one of their packaged current accounts. Packaged current accounts provide a guaranteed monthly income stream to the bank.”

For a packaged account to be good value you need to take advantage of the perks, such as home insurance and breakdown cover. If you don’t, then you could be paying hundreds a year for nothing.

But with the shift to fee-based banking far from complete there are still plenty of free alternatives to your existing account. The variety of charging structures mean it is worth checking out what’s available.

The biggest factors that people look for in a bank account – other than the ever-elusive good service – tend to be decent in-credit interest rates and lenient overdraft terms. Even in these two areas, the range of deals available on the high street is widening. The account that’s best for you depends on your needs, but it may well not be your existing one.

“If you maintain a balance each month, then opt for an account with a competitive credit interest rate. If you live in your overdraft, then an account with low overdraft rates will save you money each month,” said Slade.

When it comes to authorised overdrafts, some banks charge interest on the amount you are overdrawn while others charge a daily fee, some capped at ten days a month and others unlimited. To confuse matters even further some, most notably Lloyds TSB, charge both interest and a monthly fee.

The Bank of Scotland reward account charges £1 a day on overdrafts up to £2,500 and £2 a day on bigger overdrafts. If you only edge into the red for a few days at the end of the month, this can work out cheaper than the alternatives. But if you live in the red, it can prove very expensive.

In terms of overdraft interest rates, one of the most competitive is the 15.9 per cent charged by First Direct. Santander’s preferred account, which requires customers to pay in £1,000 a month, has a one-year interest-free overdraft for new customers, after which it changes to the bank’s 50p a day structure. Barclays also has a one-year interest-free overdraft to customers paying in at least £1,000 a month, although the rate jumps to 19.3 per cent after that.

If you are rarely or never overdrawn, however, you’ll be more concerned with being rewarded for being in the black. And with many banks no longer paying interest on in-credit current accounts, it may be worth making sure you’re getting something for your money.

The highest in-credit rate on the market is paid by the Santander preferred account, at 5 per cent on balances up to £2,500 for the first year. Bank of Scotland’s reward account pays £5 a month, provided at least £1,000 is paid in each month

And that’s just the biggest high street banks. With the likes of Clydesdale and Co-operative also offering competitive current accounts, not to mention several building societies, the complaint that all accounts are the same is increasingly outdated.

Slade said: “Customers seem to have the view that all banks and their accounts are the same, so even when they are unhappy with their current account provider, they wont switch. While all banks tend to offer the same types of accounts, the competitiveness of these accounts varies. If customers are unhappy, they should vote with their feet and switch.”