Rate wars lift banking gloom

If you've not kept pace with the current account market recently, fear not - you've not missed out on much.

With the spectre of the Office of Fair Trading (OFT) investigation into unauthorised overdraft charges hanging like a cloud over the industry, few banks have made significant market moves.

However, since the High Court battle began last month, several providers have shown their hands and there are a number of intriguing offers on the market that could entice anyone dissatisfied with their current bank or building society’s service.

Top of the list is the Alliance & Leicester Premier Direct Current Account. A&L has been aggressively striving to increase its share of the current account market for the past few years. It has frequently revamped the Premier Direct product to get it to the top of the best buy tables and it has just tweaked its offering once again.

New customers will earn 8.5% for the first 12 months on balances up to £2,500. The rate then drops to one percentage point below Bank rate – the current ‘go-to’ rate is 4.25%.

The new rate also applies to the Alliance & Leicester Premier 50, an account tailored for the 50+ age group with a series of features including worldwide travel insurance, health benefits and ID protection.

The Premier Direct and Premier 50 accounts also offer market leading overdraft rates, making them great for those who are regularly in the red as well as those who will benefit from a high in-credit rate: no interest or fees are charged on overdrafts for the first year.

Premier Direct’s nearest rate rival for rates on balances in credit is the Abbey Account, which still offers an attractive 8% up to the first £2,500. If your balance tends to be more than £2,500, Abbey’s account may actually work out to be a better deal, as A&L pays just 0.1% above £2,500. The Abbey deal is only available to those switching from another provider, so those opening their first current account can’t take advantage of the offer.

HSBC is also offering 8% on its Plus account. The rate is available on balances up to £1,000 to customers who sign up before the end of March. However, this is a packaged account so there is a £12.95 monthly fee, although the account includes benefits such as worldwide travel insurance and identity theft assistance.

Providers are also looking to attract new current account customers by offering cash incentives – A&L will give you and a friend £25 if you sign up on their recommendation. Sign up for the First Direct 1st account and you’ll be given even more – it is offering £100 to new customers. If you sign up and then close your account within a year, because you are unhappy with the service for any reason, you’ll get another £100 - as long as you’ve been paying in a salary of £1,500 or more each month.

There are a couple of catches with this deal however – it pays no interest on balances in credit and there is a £10 monthly fee, if your average balance is less than £1,500. However, once you open a 1st account you are entitled to move to the First Direct Regular Saver and earn 8% AER fixed for the first 12 months.

If you’ve had debt problems and are looking to get back on your feet, the Think Banking Managed Account offers one of the most competitive rates at 2.75% AER. With this account all your financial commitments are managed for you and you will receive your own dedicated money manager.

According to research from A&L, only 20% of us have switched current accounts in the past five years – most of us are earning a paltry 0.1% on balances in credit. The perception among many consumers is that switching current accounts is time consuming. However, it is probably much more straightforward than you think – most banks now have dedicated teams which undertake the whole transfer process for you. They will contact your existing bank and arrange the transfer of all standing orders and direct debits.

So don’t worry about the hassle – compare current accounts now and find a bank that’s right for you.

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

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