Add a comment

Print

Send to a friend

Bookmark with:

What's this?

Current Accounts Are Far From Free

17-July-2008, Writes Dan Drage dan.drage@consumerchoices.co.uk

The OFT has delved into the murky waters of current account infrastructure and doesn’t like what it’s found.

Having taken a long, hard look at current accounts, the Office of Fair Trading (OFT) published a damning report yesterday.

The OFT took umbrage at the following aspects of current account dynamics:

• The market, as a whole, works for the bank rather than the consumer
• Those who become overdrawn are subsidising the free ‘in credit’ banking for those that do not
• The complexity and transparency of overdraft fees and charges makes it difficult to compare different accounts on an informed basis
• Many consumers don't contemplate switching their account and for those that do it will generally be as a result of bad experiences at their previous bank
• There are a number of barriers to new entrants which prevent rapid market share growth

Expanding on the second point, BBC Business Editor Robert Peston had the following to say:

“Shout it loud, these accounts are not free. Too much profit comes from vulnerable, low income and low saving consumers, or those who incur the fat charges for borrowing more than has been agreed. This group is cross-subsidising better-remunerated customers.”

On the flipside, the OFT additionally commented on current account facets they’re satisfied with. These include added transaction channels, low fees on some transaction elements and high levels of customer satisfaction.

The OFT report irked many high street banks, with Catherine McGrath of Lloyds TSB (www.lloydstsb.com) the most vocal and defensive in her riposte:

“Over a million people joined Lloyds TSB last year and research that we conducted showed that of people who had switched their current accounts, 79% found it to be easy”

She continues:

“Competition in the current account market is fierce. There are actually over a hundred different accounts available from 29 different providers with many paying extremely competitive rates of interest.”

Chris Eagle, Commercial Manager at Credit Choices, is skeptical:

“Current account switching activity is relatively low compared to those who switch energy, broadband and credit card providers. The rules of switching current accounts are undefined and oblique; therefore most account holders have their sprit broken at some stage of the switching process and choose to stay where they are.”

Add a comment

Print

Send to a friend

Bookmark with:

What's this?