Current accounts: Britain refuses to switch banks

Competition in the UK current account market is not working, banks are shouting loudly about their latest accounts, but people are sticking tight.

A report by the Office of Fair Trading (OFT) found failings in the market and highlighted low levels of transparency, complexity of charges and low levels of switching.

A key finding was just six per cent of consumers switched accounts last year, suggesting the market is not working competitively.

If after the deregulation of the energy markets just six per cent of customers were switching providers, then the regulators would have stepped in and called for more regulation.

On an open playing field, consumers should switch with ease – which generally they can – to the best offer.

So what is holding people back?

People often shop at their favourite shop not because of price, but due to preferences such as knowing the shopkeeper's daughter, the service or the special jangle of the bell as you go in.

However, can the same be said for banks? Either the market is not working properly or consumers are just happy with their banks know they don't have the best deal but like their branches so much.

Happy with my bank

Research by Datamonitor points to Brits being at ease with their banks.

Some 91 per cent of consumers polled by the firm were either ‘satisfied’ or ‘very satisfied’ with their banks, although most fell into the satisfied category.

However, the OFT questions even its own study into satisfaction.

"The report suggests satisfaction is high, but a high level of people do not know what charges they are facing. You could question satisfaction levels if people do not know what are getting charged," an OFT spokesperson explains.

Brian Capon, at the British Bankers Association (BBA), claims the low level of switching is because people are happy with their accounts.

"Eighty per cent of people do not pay charges," he says, explaining most people use their current accounts for free and so do not have any need to change.

"A current account isn't for saving. It is for getting your salary, paying bills withdrawing money."

But with most people doing this without charges, is there any reason to switch?

Research by Which? shows it is the fear of things going wrong with standing orders, direct debits or payments or the feeling the process is all too complicated preventing people from switching.

However, switching is easy. Banks will handle the majority of switching standing orders and payments, meaning all that is needed is to go into a branch with some ID to open a new account.

Free banking

Headlines after the report were filled with the money banks earn from current accounts, a total of £8 billion with authorised overdraft charges bringing in £2.6billion and overdraft interest income standing at £4.1billion.

It seems 'free' banking is costing account holders on average £185 each.

But thinktank Progressive Vision reckons we are getting a good deal, for the £185 the banks make.

"£150 is not a lot of money considering the services such as phone banking, free cash withdrawals, chip and pin payments," says Shane Firth at Progress Vision, which is campaigning for less regulations.

Indeed, on the continent paying for banking services we have now taken for granted, such as current accounts and cash withdrawals, is commonplace.

"The individual must take responsibility for their actions," Mr Firth says, "and not blame banks."

He explains a walk along the high street shows how clear competition is.

Are we just lazy?

Perhaps the problem lies with the consumer. Most of us know we could get a better current account paying better interest and low charges with whatever add-ons we fancy.

"Banks are trying to gain customers," says Andrew Fabricius at Datamonitor. "But customers are apathetic."

But we should not be fooled into thinking all current accounts are the same, advises Vera Cottrell at Which?.

"High street banks do offer pretty similar current accounts," she explains.

"But if you look further, there is a difference between big high street banks and niche players and internet banks."

She explains internet banks are offering better interest rates and innovating on customer service.

While consumers are at the end of the day responsible for getting a better deal, Which? is calling for bank customers to be told exactly what their account is costing them so they can really compare on and off the high street.

"The OFT must make account accounts more competitive and we are calling for annual reports to make it blatantly clear you could get a better deal elsewhere," says Ms Cottrell at Which?.

So it is the fear of things going wrong that is holding back consumers from switching current accounts.

Which? found around a third of all switchers reported some trouble when changing accounts, but it was not banks causing trouble but third parties receiving and dealing with standing orders and direct debits.

Even so, the majority of people switching accounts said it was easy and not complicated to do so.

Competition may not be good on the high street, but don't blame the banks. Take the effort to find a better deal, better service and higher rates and save some cash.

"There are around 300 accounts from some 26 providers. That is a heck of a lot of choice and something for everybody," says Mr Capon at the BBA.

The advice is to write down what you want from a current account, be it 24 hour access, low interest rate on overdraft, and find an account that matches your needs.

Daniel Barnes