Current account charges rising ahead of OFT clampdown

Recent current account changes suggest that banks and building societies are preparing themselves in case they lose the court case against the Office of Fair Trading (OFT) over the fairness of overdraft charges.

In her article ‘Banks lose the first round of overdraft charges court case’, site editor Clare Francis speculated that banks may look for other ways to boost their current account revenue after the OFT won the first round of the ongoing High Court battle over unauthorised overdraft charges, granting it the power to decide whether fees levied are fair or not. That ruling came less than a month ago and providers are already making changes to their current accounts.

The next round of the court case kicks off on May 22 when the seven banks and one building society involved in the case, meet with the OFT and judge to discuss the second hearing. This will result in a ruling on whether overdraft charges are indeed unfair. If this is deemed to be the case, the OFT is likely to impose a cap limiting the amount that can be charged.

While the banks continue to insist that the amount they charge is fair, they already appear to be taking steps to boost current account revenue in other areas in case the court case goes against them.

In the last couple of weeks a number of providers, including Lloyds TSB, Natwest, Nationwide, Royal Bank of Scotland (RBS) and Halifax, have made changes to their current accounts. We are likely to see activity from other providers in the coming months so it’s time for consumers to take a look at their current account and see whether or not they’re getting a good deal from their bank or building society.

What changes have we seen to current accounts?
Nationwide is increasing the overdraft rate on its Flexaccount from 9.9% to 12.9% from June 1. At the beginning of this month it also cut its in-credit rate from 3.75% to 3.5%.

Nationwide will make further changes to the account in August when it will introduce a tiering structure – the top rate of 3.5% will only be available on balances between £1,500 and £3,000. A rate of 2% will be paid to those with between £1,000 and £1,499 in their account, while balances between £500 and £999 earn a rate of 0.5%. Those with less than £500 or more than £3,000 in the account will earn just 0.1%.

Halifax, which previously boasted one of the market leading current accounts, has cut the rate on its Ultimate Reward account and High Interest current account from 6.17% to 5.12% on the first £2,500. It has also increased overdraft rates on its standard current account from 18.9% to 19.5%.

It’s not just regular current account customers that have been hit. More than four million people across the country have been persuaded to take out ‘package accounts’ – current accounts with additional services such as free travel insurance and breakdown cover.

Lloyds TSB is the largest provider of package accounts in the UK and it has increased the fee on its Gold and Platinum accounts by £2 a month. The Gold account now costs £12 a month and the Platinum account will set you back £17 a month.

RBS and NatWest, which is owned by RBS, have introduced similar increases. Both are increasing the rates on their Royalties and Advantage accounts by 95p to £12.95 a month. NatWest Advantage Private account holders, meanwhile, will see their monthly charge increase by £1.40 to £19.95 a month.

What can consumers do now?
Research by Moneysupermarket found that 26% of people have only ever had one current account and 73% have no idea which providers offer the best rates. Most consumers have their current account with one of the four big banks – Barclays, HSBC, Lloyds TSB and Natwest – even though they pay just 0.1% on their standard accounts. Customers with these accounts could earn an extra £200 a year by switching to a more competitive deal.

The current market leader is the Alliance & Leicester (A&L) Premier Direct account which pays 8.5% on balances up to £2,500 for the first year. It then drops to one percentage point below Bank rate, so this would currently be an in-credit rate of 4%. Balances above £2,500 earn an interest rate of 0.1%.

This account also offers the market leading overdraft rate. Customers benefit from a free authorised overdraft for the first 12 months. Thereafter, you are charged 50p a day for being overdrawn although this is capped at £5 a month. 

Another good alternative is Abbey’s Preferred In-Credit account which gives you 8% on balances up to £2,500 - again this is an introductory rate which lasts for a year. The standard rate for balances in credit is 2.5% which is less attractive than the A&L deal.

For longer term value, Coventry building society’s First Account is worth considering. It pays 5.60% for the first year but the bonus is just 0.85 percentage points, so even after the introductory period has finished, you will still earn a highly competitive 4.85%.

If you are looking for a packaged account then you don’t have to pay a monthly fee – the A&L Premier Current Account has an interest rate of 1.5% and includes free European annual multi-trip travel insurance. Customers also get access to A&L’s Premier Regular Saver which is paying a fixed rate of 12% for a year.

How do you switch current accounts?
One of the main reasons why so few people switch current account is the perception that it is complicated and a lot of hassle because of all the direct debits and standing orders that most of us have linked to our account. However, as A&L’s Andy Muddimer explains in an interview with Clare Francis, the process is much more straightforward than people think as most banks now have dedicated teams in place to aid with the switching process and they can deal with your previous provider on your behalf.

In simple terms, if you were looking to buy a television from one store but could get the same model for £210 less somewhere else, you wouldn't think twice about going to the other retailer – so why not switch your current account? With the switching process now easier than ever there really is no excuse.

Have your say: Have you switched current account? If so, how did it go? Visit our community forum and let us know.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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