Each customer pays their bank around £152 a year for the use of their current account, an Office of Fair Trading (OFT) report has found.
This means that banks earn a whopping £8.3 billion annually, with the vast majority coming from insufficient funds charges (£2.6 billion) and net credit interest income (£4.1 billion).
Worryingly, customers seem to be confused about how much banking actually costs them - a significant number do not know how much they actually pay in bank charges, either before or after they are incurred.
Furthermore, over than three-quarters do not know the credit interest rate of their current account.
Loyal customers losing out
The report also found that complexity and lack of transparency surrounding current accounts is making it extremely difficult for customers to compare their account with others on the market.
This leaves customers with little incentive to switch providers, especially as there is a general belief that doing so is both complex and risky. This means many customers are left languishing in uncompetitive accounts, as banks tend to reserve their top, headline-grabbing deals for new customers.
So it’s hardly surprising that the OFT feels the current account market is not “serving consumers well”. The organisation says it plans to work with the banks to try and achieve greater clarity, transparency and consumer empowerment.
Banks could do much more
“Personal current accounts are a vital gateway to effective participation in the economy,” says OFT chief executive John Fingleton. “But this market is not serving consumers well.”
“Customers lack the information they need to choose the best deal, and this in turn weakens the banks' incentives to compete. There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future,' says Fingleton.
“In the view of the OFT the status quo is not satisfactory. The OFT will spend the coming months engaging with banks and consumer groups to try to achieve greater clarity, transparency and consumer empowerment in this market, either through voluntary change or, if necessary, through other routes, potentially including greater regulatory intervention or a reference of the market to the Competition Commission.”
Don’t wait, empower yourself
Just because the OFT is pressuring the banks doesn’t mean that we should simply sit back and wait for a better deal.
Despite what many people may think, switching current accounts is a lot easier than it once was. Most banks actually have dedicated switching teams to help you, and you won’t need to set up all your direct debits and standing orders again, as these will be automatically transferred over (though it doesn’t hurt to double check).
Choose the account that matches your needs
So which account should you go for? Well, that depends on your financial circumstances.
If you are constantly in the black, you should go for an account that pays a high credit interest rate. The best at the moment is Alliance & Leicester’s Premier Direct account, which pays 8.5% AER on all balances up to £2,500.
The rate falls after one year to 1% below the base rate, so it would currently be 4%, but this is still miles better that the insulting 0.1% you get on the average high street account.
If you are constantly dipping into the red, you should opt for an account that charges no interest on overdrafts for the first year. You can choose either the A&L Premier Direct or a Barclays current account - note that only new Barclays customers get the interest free offer, so you have to switch to the bank to qualify.
