Money news, advice and predictions for savers and spenders.
By Jeremy Gates
When major household brands such as Virgin, Tesco and the Post Office said a few months ago that they wanted to launch their own current accounts, many customers at the big High Street banks imagined a new banking dawn was about to break.
It isn't only the cataclysmic losses in the meltdown of autumn 2008 - and the multi-million pound bonuses for bankers since - which have opened a huge gulf between established banks and their customers.
Figures from the Financial Ombudsman Service show more than 80,000 complaints were received in the second half of 2009 against financial services companies, with more than 20,000 of them against Lloyds Banking Group through its various brands - Lloyds TSB, Halifax and Bank of Scotland.
Royal Bank of Scotland (including NatWest) attracted nearly 5,000 complaints. That's roughly a thousand more than Santander - the Spanish owner of Abbey, Alliance & Leicester and Bradford & Bingley.
Lloyds, in its defence, says it has more than 30 million customers, and will deal fairly and consistently with each complaint.
However, a new generation of banks aims to challenge the ancient leviathans.
American-owned Metro Bank has gained Financial Services Authority (FSA) approval to win the first full-service banking licence for a new High Street bank since the 19th century.
The first two Metro Bank branches will open in the second quarter of 2010, in the Holborn and South Kensington districts of central London. Others will follow in Fulham Broadway and Borehamwood, Hertfordshire, and the network across Greater London should top 200 by 2020.
To 'surprise and delight' each customer, Metro Bank will offer extended opening hours over seven days a week, online banking, a 24/7 customer call centre located in London, a rapid opening procedure to supply new credit and debit cards within 15 minutes in branch, free coin counting machines at every branch and even a welcome (water bowls and biscuits!) for customers' dogs.
Metro Bank vice-chairman Vernon Hill says: "At Metro Bank, the customer is king and our goal is to reinvent British banking by building fans, not customers."
Clare Francis at Moneysupermarket.com says: "Metro Bank is promising a brand new take on retail banking.
"Even before we've seen any of its products, Metro Bank will have made competitors sit up and take notice; customer-friendly opening times, no 'stupid' bank rules, instant issue of cashpoint and debit cards and so on, are all a refreshing take on how banking could and should be done.
"If Metro delivers on its pledges it should be great for consumers who will benefit, as it raises the bar in terms of customer service, branch facilities and products."
Metro Bank won't discuss its charges, however, Virgin Money chief executive Jayne-Anne Gadhia is more forthcoming.
"Most people know there is no such thing as free banking," she told The Sunday Times. "Banks have to cover the cost of free current accounts with hidden charges, such as overdraft fees.
"We're definitely planning to charge for current accounts, and be transparent about it."
If Virgin Money is right, the end of free current account banking - even for those who stay in credit - is not far off, bringing Britain in line with Europe.
David Black, banking specialist at financial data collection and research company Defaqto, says: "Within two or three years, current accounts which are operated free of charge - if they are kept in credit - could become a thing of the past."
Ironically, the demise of free banking could be accelerated by the settlement of huge claims from angry customers across other financial product areas.
The FSA believes compensation payments to customers who were sold payment protection insurance (PPI) on credit card, mortgage, personal loan and other financial agreements could top £4.2 billion.
And, if the Office of Fair Trading suggests that charges on unauthorised overdrafts should be capped, banks will lose even more revenue - a gap which must be filled by customers in some other way.
Against this background, Black thinks new banks could struggle to get a foothold.
"Virgin has indicated a low monthly fee and a fairly low overdraft rate," he says. "But it remains incredibly difficult for new providers to pick up a significant market share on current accounts.
"They must offer something fantastic to get numbers up quickly, and that will be the problem for Virgin. For example, you already get interest free, authorised overdrafts on accounts with Barclays and Santander, providing you pay in at least £1,000 per month, and with Alliance & Leicester, pay in at least £500 per month".
Although Post Office Financial Services could launch a current account this year, Black thinks Tesco Bank - who will probably launch a current account in 2011 - has the best prospects.
"Tesco has a great advantage," he says. "Besides its excellent reputation, generally somebody in each household has to go to a supermarket or supermarket website at least once a week. That gives Tesco massive marketing potential to a large, loyal customer base."
Over the next 18 months, even the most disgruntled of bank customers is likely to sit on the fence. Why should they commit to a new current account until new providers show their hand?
Meanwhile, Defaqto has analysed 121 full-service current accounts, rating them from one to five stars.
Some 63 accounts are free (if the accounts stay in credit) and 58 are packaged accounts with add-ons, such as travel insurance, breakdown cover, mobile phone insurance and identity theft protection and cost from £5-£25 per month.
The average monthly fee for a current account, says Defaqto, is £14.98.
There is also a tendency to direct attractive mortgage products to current account customers; Halifax, HSBC and NatWest all offer cheaper mortgages to their current account customers.
For consumers who are determined to enjoy fee-free banking, Santander claims that more than 22 million consumers could qualify for its ZERO Current Account, which promises a market-leading interest rate on balances up to £2,500 in the first year, no overdraft fees, free ATM access around the world and no charges on purchases using a Visa Debit card worldwide.
Initially available to mortgage customers, it is being extended to holders of any Santander investment product with a minimum value of £1,500.
Consumers who are ready to pay for packaged accounts, on the other hand, must be sure that the extras enjoyed on any account justify the monthly charge.
Black says: "Look carefully at the quality of extras and incentives on offer. Does free travel insurance cover your wife and children? Does it apply to Europe, America and the ski slopes?
"If you are a pensioner, getting travel cover isn't always easy. So NatWest's travel insurance, with no age limit, has obvious attractions for older pensioners."
Perhaps the long-awaited banking revolution could come down to this: If we all end up paying for a current account, what do we get in return?
Black explains: "Banks see current accounts as the main relationship builder with customers, and the key to understanding their financial capabilities.
"The cross-selling of other products onto the existing customer base will become the key battleground as each bank strives to become a one-stop shop for all the personal finance needs of its customers."
:: Information: Defaqto analysis of current accounts is available at www.defaqto.com/star-ratings. Santander ZERO account: 0800 234 6058 and www.santander.co.uk.
Another useful comparison of current accounts can be found at www.which.co.uk/current accounts.
Poundnotes
:: The weak pound means Britons travelling abroad must take greater care in buying foreign currency. An airport survey by FairFX claims bureaux at Birmingham Airport paid the worst rate to travellers who want euros, while Liverpool, Luton and Gatwick all offer less than one euro to the pound. Heathrow has a current rate of 1.01 euro to the pound, with a £3 commission charge.
FairFX chief executive Stephen Heath says: "Airports have always been notorious for misleading consumers with advertisements for '0% commission'. At Birmingham, for example, consumers get 10% less for their money then they would get from a FairFX currency card.
"Holidaymakers should think ahead and buy currency in advance to get the best rate on their holiday funds."
:: Although big energy suppliers are at last cutting their tariffs, around three million consumers could miss out because they are 'locked' into expensive capped tariffs which still have some time to run, says Mark Todd, director of energyhelpline.com.
Todd explains: "Customers have to pay cancellation penalty fees of up to £100 if they want to cancel the agreements so they can benefit from falling prices. These penalties seem to be scaring off many who would like to switch."
In many cases, says Todd, consumers should 'take the hit' of the penalty fee to get into a cheaper tariff.
For instance, the British Gas Fixed Price Tariff, running until the end of January 2012, costs an average £1,428 per year, £532 more than the cheapest available tariff of £896 - so, any penalty fee would soon be recouped.
:: Although Northern Rock loses the 100% Government guarantee on savings balances on May 24, savers shouldn't automatically dash to other providers, says Andrew Hagger at Moneynet.co.uk.
He says Northern Rock's one-year bond at 3.15% is the fourth highest rate in the field, and only a whisker behind the Post Office in the top spot at 3.30%.
Rock's two-year bond has risen to 3.50%, although this is some way behind market leader ICICI Bank (4.25%).
Consumers who have the lower safety net of £50,000 on their savings might yet be persuaded to stay, says Hagger.
:: With interest rates so low, credit card holders should use any spare money to pay more each month off the outstanding balance on their card, says Peter Harrison at Moneysupermarket.com.
Somebody with an outstanding balance of £1,989 who repays the minimum 2.5% every month will take a staggering 22 years and 10 months to repay their entire balance, with an overall interest charge of £2,490.
If they pay £20 per month extra, the repayment period is slashed by more than 17 years to five years and seven months, and the overall interest bill falls to £857.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
AA 0845 603 6302 5.10% (F) Telephone Fixed Rate Bond Five Year Bond (T) £500 Yly
SAGA 0845 850 0664 5.10% (F) Fixed Rate Savings Five Year Bond (S) £1 Yly
Santander www.santander.co.uk 3.50% Flexible ISA Instant £1 Yly
Secure Trust Bank 0800 408 2020 3.25% 120 Day Notice Issue 1 120 Days £1,000 Quarterly
FirstSave www.firstsave.co.uk 3.25% 90 Day Notice 90 Days £100 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 2.39% discounted for two years 60% £999 Yes
First Direct 0845 610 0100 2.39% variable for term 65% £499 Yes
Norwich & Peterboro BS 0845 300 2522 2.95% for three years 75% £695 Yes
Britannia 0800 013 2322 3.19% to 30/06/12 75% £999 Yes
Post Office 0800 707 6204 3.59% variable for term 80% £599 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
