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January 6, 2012 6:24 pm
Banks have begun the year with renewed attempts to win customers from rivals – by offering new cash and interest rate incentives, before competition on the high street intensifies.
Co-operative Bank – named at the end of 2011 as the preferred bidder for more than 600 Lloyds branches that are up for sale – is positioning itself as a challenger to the “big five” with a deal to cut overdraft interest payments.
New and existing customers will pay no fees on agreed overdrafts for the first three months of the year, saving more than £70 on a £2,000 overdraft. The mutual has also reduced rates across its personal loan range by 1 per cent.
“We want to offer a helping hand to those customers who may be struggling financially,” said head of banking Robin Taylor.
Co-op is just one of a number of providers using short-term incentives to encourage customers to transfer their current accounts, before a quicker and simpler account switching system is introduced in 2013.
Although current accounts often cost banks more money than they generate, they offer the chance to cross-sell more lucrative products, such as mortgages.
As a result, some banks now pay more interest on current accounts than they offer on savings accounts.
HSBC is offering to pay 6 per cent interest on sums of up to £2,500 held in its Advance, Premier or standard bank accounts, as part of its annual “January sale”. New accounts must be opened before the end of the month to qualify for the rate and customers need to pay in at least £500 a month, as well as transferring at least two direct debits to their accounts.
Bank customers wishing to transfer large, one-off sums will face fees of up to £30, following changes to the way money is moved between accounts.
New European laws, introduced at the start of 2012, mean all internet and phone payments from one account to another must be processed within one working day, rather than three.
But while the majority of these payments will be made free of charge, larger sums will now be processed via the existing one-day transfer system, which is mostly used by corporate clients and carries a fixed usage fee.
The clearing house automated payment system – or Chaps, as it is known – is a method of secure transfer that individual customers could previously choose, instead of the traditional banker’s automated clearing services payment – or Bacs – which could take three days. Depending on the bank involved, Chaps payments would incur a fee of between £25 and £30.
However, the new European requirement for all electronic payments to be processed within one working day means that banks can no longer rely on Bacs for large payments. Money must either be transferred via the free “faster payments” service, or the secure paid-for Chaps service.
Some providers will allow up to £100,000 to be sent free of charge, using faster payments. But others will permit a maximum of only £5,000.Free transfer limits:
● Clydesdale/Yorkshire Bank: £5,000
● Barclays, HSBC, Nationwide, RBS: £10,000
● Lloyds Group: £25,000
● The Co-operative Bank, Santander: £100,000
Sums in excess of these limits can therefore only be transferred at a cost to the customer.
In response to the new laws, Barclays and RBS have said they will waive their fees for retail customers who make large payments. HSBC said that it was reviewing the limit it had set for free payments.
Existing HSBC customers cannot open a new account to take advantage of the deal, as the offer is aimed solely at getting new business through the door.
Halifax and Santander are offering a more immediate incentive: promising £100 cash to customers who transfer their accounts.
In addition, Halifax is offering to pay the money on the day the account is opened, rather than the date that funds are transferred.
When this £100 inducement is added to Halifax’s existing promise to pay £5 a month to in-credit customers, or to Santander’s offer to pay 5 per cent annual interest, those making the switch can expect to earn more on their new current accounts than they could in many savings accounts.
“2012 has kicked off with renewed activity in the current account market as banks fight to win our custom,” explained Kevin Mountford, head of banking at moneysupermarket.com, the price comparison website.
However, he added a note of caution: advising customers to consider the overall attraction of an account, beyond the initial offer, before agreeing to a transfer.
For example, he pointed out that customers moving to Halifax’s current account, but then making use of its authorised overdraft, would not only miss out on the £5 monthly payment, but also face a daily fee of £1.
Similarly, customers accepting the £100 sweetener and moving to one of the “packaged” accounts offered by Halifax or Santander would face monthly fees of £15 or £10, respectively.
Competition for customers is set to increase as Virgin Money starts offering new accounts. Having completed its purchase of Northern Rock, Sir Richard Branson’s banking business is focusing on broadening its range of saving accounts, with an advertising campaign launching on Sunday. But when it introduces full current accounts in 2013, the bank is planning to introduce a small “transparent” monthly fee for all but the most basic products.
Consumer groups said that if customers can still be paid to switch current accounts, they will be unlikely to take kindly to any mandatory fees – however small.
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