Shake up for current accounts as consumers demand better deal

A year long study into retail banking should lead to shake-up in the sector

The banks should play fair with their customers (Rex)

The Competition and Markets Authority will be publishing the provisional findings of its Retail Banking Market Investigation tomorrow. Hopes are high that it will be the beginning of widescale changes in the way banks operate when it comes to current accounts. The hope is that banks will be forced to make it easier for consumers to switch accounts and, indeed, understand which account is best.

One of the biggest problems is that – even though new rules came into force two years ago to make switching much easier – people are confused about which account to choose and are even scared that they may end up with a worse deal.

Earlier this month consumer group Which? called for a complete overhaul of accounts to protect customers from confusion and high charges. Meanwhile challenger banks want changes to allow them to compete fairly with the high street banking giants.

Last week two of them said it was time to end free banking. “The industry portrays the myth that current account banking is free but we reckon the industry makes £7bn to £8bn a year from current accounts,” said Paul Pester, chief executive of TSB.

Meanwhile Jayne-Anne Gadhia, Virgin Money’s chief, said: “The CMA should make banks pay the going rate of interest on current account balances which would make more banks think about starting to charge for current accounts.”

Yesterday new research was published revealing that most of us - more than three quarters of those surveyed - want to see an increase in challenger banks opposing the current dominance of the big five high street names.

The research was published by one of the smaller challengers, ethical bank Triodos. But that shouldn’t detract from it. Its main findings should resonate with all of those who’ve endured bad behaviour from the big banks and got in return shoddy service, unexpected fees, and unhelpful terms and conditions.

People’s main bugbears are paying out hefty bonuses, providing sub-standard customer service, and not being honest with customers. All those wider issues aren’t being addressed by the market study. In fact the watchdog launched the enquiry a year ago because of low levels of switching accounts, limited transparency of costs, and barriers to entry for challengers.

In the last 12 months it’s been examining the difficulties customers face in switching, and the lack of smaller competitors to the big five. Predicting its conclusions is impossible but it’s essential that the current account market is cleaned up so that millions don’t continue to end up with outrageous fees that can end up pushing them into real financial difficulties.

A new report published today by the Fairbanking Foundation shows that two out of five people say the image of banks has deteriorated in the last year with a third blaming lack of transparency and failing to focus on customer needs.

The not-for-profit charity operates a certification scheme - which it’s just widened to include credit cards and loans - to encourage banks to improve the financial well-being of their customers. Only certain accounts qualify for its mark and to get a maximum five star rating, an account mustn’t mislead consumers.

That rules out accounts with teaser rates which can trick people into getting paltry returns, but it also rules out the many accounts with high overdraft fees, which can end up causing misery for those that slip into the red.

The Foundation’s chief executive Antony Elliott says “Too many colleagues in financial institutions do not understand their role as being to help people manage their money, and that success in doing this should be the primary reward.”

That’s a powerful message for bankers - and the CMA - to consider. Do we want our banks to help us manage our money? Of course we do, but at the right price and with full clarity.