Moneysupermarket.com editor Clare Francis chats with Alliance & Leicester's Andy Muddimer about the reasons behind why we continue to stay with our current accounts regardless of whether we are getting the best deal?...
Video Transcript
Clare Francis: When did you last switch current account provider? For many of you the answer will be never, because many of still have the same account we opened when we started working or went to university, and often that is with the bank that our parents banked with.
Andy Muddimer, from Alliance and Leicester, is with me today to talk about why as a nation we seem so tied to our current account provider, regardless or not of whether we are getting a good deal.
Q1: Andy thanks for sparing some time with us today. Alliance and Leicester is a very big player in the current account market, you have got some of the leading deals - your two main accounts are the Premier account, which pay 1.50% AER on balances in credit, but it also offers a 12% AER regular savings account and travel insurance, and then your Premier Direct is aimed more at people who are happy to bank online and pays a market leading rate of 8.5% AER - but most people still haven't switched, why do you think that is the case?
Andy Muddimer: I think give everything that has happened in the press and on the TV at the moment with the credit crunch, we know that we are being asked to tighten our belts, we are being told that we need to make every penny count, and there has never been a better time to switch current account, by switching your current account to something such as a Premier Direct you could be earning 85 times more interest, or that's £200 in your pocket.
Q2: You have obviously got some very attractive current account offerings, but is it enough to entice people over? Or do you think there is still more to be done to get people moving?
Andy Muddimer: I think it is really important that banks actually listen to there customers and they design accounts that meet those customers needs. So we have the Premier 21, which is aimed at those between 16 and 21, starting employment, offers an unprecedented interest rate of 10% AER; our award-winning Premier Direct account with a market leading rate and also a 0% EAR overdraft rate; and finally the Premier 50 account, which is aimed at those people that are reaching the age of 50 and above, where it offers an exclusive range of benefits including health, travel and identity protection.
Whether we are doing enough, I did say previously that only 1 in 5 people have switched in the last 5 years, so probably not. What we need to continue to do is we need to continue to bang the drum, to drive out the message there that you can get better value by switching to another account.
Q3: I think one of the reasons a lot of people are reluctant to switch current account is that they think its too much hassle - obviously they've got their salary coming in each month, they have got direct debits and standing orders linked to the account - and they are just worried that if they do try and change providers, something will go wrong and they may get charged for a missed payment or something. Can you dispel the myth - is it really that complicated to switch account?
Andy Muddimer: I think that there is a myth out there that it is difficult to switch your current account, and I can understand why customers think that, because your current account is the most important account that you have - you use it for your day-to-day transactions and your day-to-day banking, and that is what the big banks rely on as well. Because they know that customer are a little bit concerned about 'are there going to be issues about switching account', they can get away with offering rates such as 0.1% AER and offering really poor value to their customers.
Q4: I have actually switched current account myself twice in the last few years so know that it isn't as difficult or as complicated as perhaps many people think it is, because a lot of banks have dedicated teams that are just wholly there to see customer through the switching process and they will do all the direct debt transfers and switches for you won't they?
Andy Muddimer: Absolutely we have a dedicated team that are very professional, and very experienced, and we also have an automated service to make sure everything goes smoothly along the way. We will write to the customer at every step, and we can change direct debits, standing orders, we can arrange for the salary to be paid into the account, in fact we can even close your old account, so we really do take that hassle away and give the customer the peace of mind that switching is simple.
Q5: And what about overdrafts? Obviously overdrafts have been in the spotlight recently because of the ongoing court case between some of the big banks and the Office of Fair Trading, regarding unauthorised borrowing fees. Alliance and Leicester has changed their charging structure of the overdraft last year - can you explain what you did and why have done it?
Andy Muddimer: Overdrafts are an exceptionally important aspect of the overall value of the current account. We looked at our overdraft structure last year and we found that by talking to our customers, that they thought that the way that banks and ourselves actually charge fees and calculate interest was very complicated - in fact the majority of them didn't even know what rate of interest they were paying.
So we simplified our fees last year and we were the first bank to do this (in fact the only bank to do this) and we charge a simple fee, a daily fee, for people who use their overdraft so they know how much the cost of borrowing is to them. I think also, probably importantly to mention is that the Regulator has also been looking at overdrafts and he also thought that the way banks actually calculate their interest is very complicated, and that customers just don't understand the actual language that banks use, so since we have introduced this new fee structure, certainly the feedback that we've had from our customers, and from the press, has been extremely positive.
Q6: When people compare current accounts they tend to focus on the in-credit rate that you are paid when you balance is obviously in credit, but what about if you slip into the red every month or are overdrawn continuously? Overdraft charges vary significantly, is it something that people should bear in mind - is it still worth switching even if you are regularly overdrawn?
Andy Muddimer: I think you can certainly get a better deal. It's interesting to note that in any point, on average 8 out of 10 customers are in credit, so it is extremely important that you get a good credit interest rate on your account. Unlike the other banks though, at Alliance and Leicester we offer both the market leading credit interest rate and a 0% overdraft, whereas the other banks that have tended to follow us with a 0% overdraft will still only offer a very poor rate of interest on any balance that you have in your account.
Q7: So the message then Andy is that people shouldn't be afraid of switching current account, that they can not only get a better deal by moving provider but also the process isn't as complicated as many may fear?
Andy Muddimer: Absolutely not, and you could be £200 better off for it!
Clare Francis: Thanks very much Andy.
Andy Muddimer: Thank you.
