The turmoil surrounding the lender Northern Rock has had a damaging effect on the reputation of high street banks, analysts say. And in its wake, scores of customers are shopping around for improved services and deposit rates.
But if you are looking to follow suit and move accounts this month, remember that banks tend to alter their rates in subtle ways to meet year-end financial goals. As long as you are careful and realise that the headline rates on offer are not likely to last, this could work to your advantage.
This Christmas season, lenders are keen to bring in more retail deposits as the credit crisis has increased the cost of borrowing in the wholesale markets.
“Over the last 18 months, the current account market has changed shape. The range of packaged accounts has grown rapidly, and the continual rate battle has stepped up a gear every few months, with rates climbing and new players joining,” says Esther James, personal finance expert at Moneyfacts.co.uk.
With interest rates on the rise, the cost of borrowing is higher for banks so, while lenders tend to lose, savers can benefit as deposit rates for both savings and current accounts are now as high as 6.5 per cent.
Two banks that stand out for offering attractive current accounts are Abbey and Alliance & Leicester. Abbey is now offering an 8 per cent interest rate on its current account for 12 months if you transfer a balance of as much as £2,500 from another provider. At the same time, Alliance & Leicester offers a guaranteed AER of 6.5 per cent on balances of up to £2,500 and a linked savings account, which pays 6 per cent on balances up to £50,000. There is no charge for an overdraft – which is limited to £2,500 – for a year. After that, the cost is 50p per day.
National Savings & Investment, meanwhile, offers an enticing 6.3 per cent rate on its mini-cash Isa, which allows immediate access, while ICICI Bank’s online HiSave savings account’s AER is 6.41 per cent.
At the top end of the market is West Bromwich building society, which offers a rate of 6.54 per cent if you deposit a minimum of £1,000.
The outcry over Northern Rock can also be seen as another manifestation of the power struggle between customers and banks.
In recent months, customers have rebelled against “unfair” bank charges and expressed concerns that the recent breach in data security by the government – which resulted in the loss of millions of bank account details – might have some fallout in the retail banking sector.
From the year to the end of September 2007, the Financial Ombudsman received 57,624 complaints, more than 250 per cent higher than the number of criticisms received the year before.
Media attention on the relationship between banks and consumers is likely to remain intense when next month the case for legality of banking default charges brought by the Office of Fair Trading (OFT) will be heard in the High Court.
The OFT took up the case of unauthorised bank charges after thousands of consumers started applying for rebates and the biggest banks refunded hundreds of millions in charges. It is investigating whether the charges levied are fair and commentators have said the case could lead to banks ending free banking.
Banls may now look to make radical changes, to improve relations with their customers in future. A survey on European banks by the consultancy Coleman-Parkes – set to be released next week – claims that what consumers across the continent want, in addition to low service fees and high deposit rates, is banks that are “informal” and “personal”.
“Failure to move to a more personalised approach will restrict the growth of the banks and negatively impact customer service,” the study concludes.
