The real cost of current accounts

A new Which? investigation reveals how much consumers could be out of pocket by having the wrong current account because it’s impossible for them to work out the real cost of lost interest and overdraft charges.

We looked at three months of current account statements from three consumers – someone who regularly uses an authorised overdraft, someone who occasionally dips into an unauthorised overdraft, and another who is usually in credit.  We sent the anonymised data to 12 of the UK’s biggest high street banks to find out how much people could pay in charges or earn in interest for these three scenarios. We got results for 18 accounts in total.

Our scenarios found:

  • The unauthorised overdraft user would have paid between around £150 with the Co-operative’s Standard Current Account, to no charges with First Direct’s 1st Account (which has an automatic £250 interest-free overdraft facility) or just 25p with the Co-operative’s Current Account Plus or Smile’s Current Account (which both come with arranged overdrafts).
  • The regular authorised overdraft user, who went over their limit for two days, faced fees ranging from around £60 with the Santander Everyday account to just a matter of pence with First Direct’s 1st Account.
  • The person in credit would have earned nothing at all with 13 of the accounts or up to £16 in interest and cashback from the Santander 1,2,3 Account (before fees).

Which? welcomes the Government’s midata scheme, due to start in April 2015, which  will enable current account customers to download data on their last 12 month’s transactions. They will be able to feed this into a comparison site to check how much their account is costing them and whether another would suit them better.

Six of the biggest high street banking groups have signed up to midata  so far, but the whole banking industry needs to take part for customers to be sure they’re getting the best account for their needs. We want every current account provider to commit to midata without delay.

Richard Lloyd, Which? executive director said:

“It’s almost impossible for even the most savvy consumers to work out if they have the best current account. Many could save money by moving to a different bank, including people who stay in credit, but when it’s so difficult to figure out the cost it’s no wonder the levels of switching are still so low.

“All banks should commit to the Government scheme making it easier for customers to work out the fees and charges so they can judge if they have the right account.”

Previous Which? research found that half (52%) of consumers who haven’t switched banks say they’d be more likely to if it was easier to compare accounts, yet only a quarter (26%) agree that this is easy to do at the moment.

Notes to Editors

1. All 12 banks we asked gave results for their standard current accounts and six also did for their premium accounts – 18 accounts in total. We excluded packaged current accounts that offer features such as travel insurance or car breakdown cover in exchange for a monthly fee.

2. Summary of the banking behaviour scenarios we used:

  •  The customer who stays in credit: account was always in credit containing at most £1,949, and on average £687; they also made three €100 withdrawals at overseas ATMs
  •  The regular authorised overdraft use: planned overdraft of £300; 40 days overdrawn, 38 within the overdraft limit and two over it; overdrawn at most £318, and on average £111; the account contained at most £2,860 and on average £110.
  •  The unauthorised overdraft user: they spent £17 days overdrawn by at most £52, and on average £31; they made 12 payments that were larger than the amount of money in the account; there was at most £5,148 in the account (for one day), and on average £49.

3. All calculations included automatically applied buffer zones and overdraft limits. The following providers offer interest and fee-free buffer zones or overdrafts as standard: Barclays £15, First Direct £250, Halifax £10 for standard current account and £50 for Reward current account, HSBC £10, Lloyds £25 for Classic account and £100 Club Lloyds account, Natwest £10, Santander £12 and £10 for TSB. Nationwide applies a £10 unarranged overdraft buffer to FlexDirect customers and £15 for Flex Account customers – however customers will still be subject to some charges within this limit. Smile offers a £500 arranged overdraft to current account customers and Co-operative a £200 overdraft to Current Account Plus customers as standard. Norwich and Peterborough offers a £250 interest free overdraft to Gold Classic customers for the first months the account is open, however this was excluded from calculations. Some accounts have minimum financing requirements for credit to be paid or to avoid account fees and the Santander 1,2,3 account has a £2 monthly fee.

4. The six banking groups have already committed to the midata scheme: Barclays, HSBC, Lloyds Banking Group, Nationwide, RBS and Santander.

5. The Which? Consumer Insight Tracker shows that in the last year on average 5% of people use an unauthorised overdraft every month and 18% use an authorised overdraft every month – nearly five million households use an authorised overdraft every month. Populus, on behalf of Which?, interview a representative sample of 2,000 adults each month online. Data are weighted to be demographically representative of all UK adults. Populus is a member of the British Polling Council and abides by its rules.

6. Survey on non-switchers: 1,055 members of the general public completed an online survey between 9thAugust and 18th November 2013. 1,001 had not switched current account in the past 12 months.




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