Kevin Mountford, Head of Current Accounts & Savings
Alliance & Leicester (A&L), which is the subject of a £1.26billion takeover bid from Santander, the Spanish bank that owns Abbey, is renewing its effort to increase its share of the current account market, by offering anyone who signs up to its Premier account, £100. But will this be enough to get you switching?
Nearly 60% of people admit to never having switched their current account provider according to research from A&L, and the Office of Fair Trading (OFT) effectively accused the banks of taking advantage of this inertia.
In a new report the OFT concluded that the £8billion a year personal current account market is not working well for consumers - it said the complexity and lack of transparency in the market makes it extremely difficult for individuals to compare their bank account with other offerings and that in turn there is little incentive for customers to switch provider.
With rising living costs biting, it really is the time to break free from the apathy that seems to grip the British nation and ensure you are not stuck with uncompetitive financial products, and your current account is the ideal place to start. Vote now in our poll: Have you ever switched current account provider?
So what's A&L offering?
A&L is one of the few current account providers actively trying to increase its market share and attract new customers.
The bank has four main current accounts: the Premier account, Premier Direct, Premier 50 (which is for the over-50s only) and Premier 21 (available for 16-21 year olds). They all offer different features, but anyone who switches to the Premier Account will receive £100.
The in-credit interest of 1.0% on balances up to £2,500 is not the best in the market but other features will make it appealing to some, not least the £100 switching incentive. In addition, the Premier Current Account includes free European annual multi-trip travel insurance worth up to £60 (although an upper age limit of 65 applies) and customers can bank in branches, online or over the phone.
As with all of A&L's current accounts, customers also benefit from great overdraft terms. It offers an interest-free offer for the first 12 months, after which you pay 50p per day up to a maximum of £5 a month. This is one of the most attractive overdraft rates on the market so if you're regularly overdrawn this could be the deal for you.
If you are regularly in the red, switching to the Premier account is a great option - A&L will match the overdraft limit you have with your current bank. However, if you tend to run your account in credit you need to work out whether the £100 switching incentive and free travel insurance is worth more than a higher interest rate.
The A&L Premier Direct for example, pays a market-leading 8.5% for the first 12 months on balances up to £2,500, after which it drops to one percentage point below Bank rate - this is 5%, so the current 'go-to' rate is 4%. The interest rate paid on balances above £2,500 is just 0.1%.
This account is only available over the internet, so in order to benefit from the attractive rate of interest you have to be happy to forego branch access and bank online. Both the Premier and Premier Direct accounts require you to pay in at least £500 each month.
A&L's other two current account products, are specialist accounts: Premier 50 is available only to those aged 50. Like Premier Direct, it pays 8.5% on balances up to £2,500 for the first 12 months and customers receive annual worldwide travel insurance and health benefits up to the age of 79, as well as identity theft protection. However, it costs £10 per month.
The Premier 21 Current Account is available for 16- to 21-year-olds and it pays 10% interest on balances up to £1,000 for the first 12 months.
A&L is not the only bank offering some great current accounts, so if your current provider pays a paltry rate of interest on balances in credit or charges a high rate of interest if you go overdrawn there really is no excuse for not moving to a better deal.
The top deals if you're usually in credit
A&L's Premier Direct offers the top paying account for most people on balances in credit. However, if you would prefer an account that offers branch access, Abbey's Preferred In-Credit current account isn't far behind. It pays 8% on balances up to £2,500. As with the A&L Premier Direct deal, this is a preferential rate that applies to the first year only - after 12 months the account pays 2.5%. This is also the rate you receive on balances above £2,500 making it a more attractive option for high earners (A&L pays just 0.1% on anything above £2,500).
Abbey and A&L are some way ahead of the competition, but they're not the only providers offering attractive deals. The Coventry Building Society Coventry First deal pays 5.6% but this does include a 0.85% bonus for the first 12 months and you must deposit at least £1,000 a month into the account. However, if you are a high earner its well worth considering because the high rate applies to balances up to £250,000.
Also worth noting is the Cahoot Current Account which pays 3.75% if you're willing to forego a cheque book (3.65% otherwise). The advantage to this deal is that there is no payment threshold - you do not have to pay in a minimum amount each month and the rate is available on balances up to £249,999. Above that you still earn a respectable 3%.
The top deals if you're regularly overdrawn
All of the A&L accounts mentioned earlier lead the way if you're permanently overdrawn with interest free overdrafts for the first 12 months. Thereafter, you pay 50p per day up to a maximum of £5 a month.
If you don't require a large overdraft facility, Cahoot offers a £100 interest-free overdraft buffer and Cooperative Bank's Current Account Plus give a £200 interest-free buffer - although it pays no interest on balances in credit.
What if you have different circumstances?
There are a few other circumstances that might be worth considering when deciding on which is the right current account for your needs.
For example, if you regularly travel abroad the Nationwide Flex Account is the top deal on the market because customers aren't charged for using their debit card overseas. However, from August 1, it will only pay its leading in-credit rates to its most profitable customers. Flex Account holders who pay between £500 and £1,500 into their account per month will see their interest rates cut from 3.5% to 2%, while those who pay in less than £500 are hurt even more with a rate of just 0.10%. Only customers paying in more than £1,500 a month will receive the full 3.5%.
If you have problems getting a current account because you have poor credit, take a look at basic bank accounts. These products are designed for customers with poor credit ratings.
The Think Banking Managed Account offers one of the leading rates at 2% on balances from £1. This includes no unauthorised overdraft fees or charges for bounced payments as all financial commitments are managed for you by a personal Money Manager. However, there is a £12.50 monthly fee for this account and a one-off £25 set-up fee.
Our current account comparison tool will provide you with more information to help you decide which account is the best for you.
Have your say: Have you ever switched current account? If so, how complicated was it? Visit our forum and share your experiences with other members.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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