Only three UK bank accounts and one credit card contain features that can significantly improve customers’ financial well- being, according to a new rating system launched today.
The FairBanking star ratings, devised by the research-based charity of the same name, have identified Saffron Building Society’s Goal Saver Account and NatWest’s Savings range as two-star savings products, O2 Cash Manager as a two-star current account, and Barclaycard Flexi-Rate as the best one-star credit card. But all other UK banks and building societies scored a zero rating for their savings products, and half of all credit card providers did not merit any points at all.
FairBanking calculated the ratings by awarding points to products that help savers or borrowers improve their financial position – by managing expenditure, reducing debt, or increasing savings for future needs. Facilities such as account-balance alerts and online budgeting tools earned positive scores. Antony Elliott, the former banker who devised the system, said it was the first time banking products had been measured in this way.
While some US banks offer products that would earn three or four stars under this system, few UK products manage even the lowest score.
“At first sight, it is not an optimistic picture,” said Elliott. “Most ratings are at a one-star level, out of the five stars that are available.”
For current accounts, the top 10 banks achieve an average of a one-star rating. The only product to get a higher rating is not a current account in the conventional sense. O2 Cash Manager, administered by NatWest, is a service that allows users to go online to calculate their monthly discretionary spending and load this amount on to a pre-paid card. It then acts as a debit card, with balance updates provided via mobile phone text messages. In this way, users can “never overspend” or go overdrawn.
Other banks that offer free balance alerts include Alliance and Leicester, First Direct, and Royal Bank of Scotland (RBS)/NatWest.
For credit cards, Barclaycard’s offering scores just over one star – though Elliott said its Flexi-Rate deal “would get an award for Best FairBanking Credit Card, if there were such a thing”. It scored extra points for incentivising debt reduction – by charging a lower interest rate to cardholders who repay more than the minimum each month – and for giving customers a breakdown of their spending by category.
Saffron Building Society is the most highly rated savings account. The three-star rating given to its Goal Saver was the highest score for any UK product assessed by FairBanking. It encourages the setting of multiple savings targets for specific purposes – such as a property deposit or an emergency fund – by creating an online financial plan that can be stored and reviewed regularly. Saffron is launching an improved version of the account, with additional planning functions, in May – which FairBanking believes will warrant a four-star rating.
NatWest savings accounts offer similar goal-setting and monthly saving calculators, via a website, earning them a two-star rating.
Andy Golding, Saffron Building Society chief executive, said the ratings were likely to be used by consumers and providers alike – but questioned whether larger banks would respond to them.
“The FairBanking method will give people ability to tell whether a product will treat them fairly or get them into trouble,” he said. “It will also make product development departments ask: are we developing products to empower people to manage their money in a better way? If you are predominantly making a business out of getting people into debt, then it becomes difficult.”