The Payments Council said that the new switching service would be brought in at the end of September, in a move which is hoped could shake up the retail banking market and improve competition.
Currently, transferring an account to a new provider takes up to 30 days, which campaigners believe deters account holders from shopping around.
Consumer groups welcomed the new rules but warned that banks needed to do more to encourage people to switch. This week, First Direct increased its switching incentive from £100 to £125, while Halifax offers new customers £100.
“Making the process of changing banks easier means that people can more quickly vote with their feet when dissatisfied with their bank and have more confidence that they won’t lose essential direct debits and credits,” said Richard Lloyd, the executive director of consumer campaign group Which?. “However, on its own the seven-working-day switching service won’t necessarily transform competition in retail banking.”
He added: “All banks need to be giving customers a reason to switch to them by offering better products and customer service, and by making it simple for people to compare the cost of running a current account.”
Less than 3 per cent of people switched their current account last year – accounting for around two million people.
The “Big Four” High Street banks – Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC – retain control over the market, holding a near 75 per cent share of all current accounts, according to figures from the Office of Fair Trading. Michael Ossei, personal finance expert at uSwitch.com, warned that financial incentives were not necessarily the best way for banks to attract customers in the post-banking crisis world, when consumer confidence in major institutions has been shaken.
Mr Osei said: “While it’s good to see banks offering consumers better value for money, our research reveals one in three say they would not be motivated to switch current accounts for a cash incentive.
“Instead, consumers say financial stability is the most important factor when it comes to picking a brand to look after their money.
“They want to know that their money is in safe hands, and this is proving to be more of a siren call than the charms of good service and value for money.”
Adrian Kamellard, chief executive of the Payments Council, said: “We look forward to a new era of account switching which will lead to greater choice for customers and wider competition in the marketplace.”