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UK Bank Current Accounts Conundrum

Personal_Finance / Current Accounts Aug 09, 2016 - 12:19 PM GMT

By: MoneyFacts


Current account customers who are considering switching their bank account will be facing an ever growing challenge to find the right deal. Now that the Competition and Markets Authority (CMA) have finalised the retail banking report, many customers will be hoping for more competition in the market for their business.

In addition, the Bank of England have just reduced the bank base rate to its lowest ever level of 0.25%, so those who use their overdraft might hope that the cost will fall. However, in reality this is unlikely to be the case. Overdraft costs do not solely rely on the interest rates charged, in fact the latest research by reveals that usage fees on authorised overdrafts have reached an all time high of £6.93 per month on average, a shocking £83.16 per year*.

More disappointing news will come to customers who have been using interest paying current accounts to boost their savings, as these variable rates could now be doomed to cuts in the coming weeks. Currently, three quarters (76%)** of the current account market pay no interest on balances whatsoever, a figure which is now likely to rise further still.

Monthly account fees are also on the rise, and deals that do offer rewards typically charge a fee for the privilege. At a time when 92%** of all current accounts for day-to-day customers charge an account fee and/or an overdraft usage fee, it’s little wonder consumers feel they have little incentive to switch.

Rachel Springall, Finance Expert at, comments:

“It’s clear to see that free current accounts are a dying breed, which is why consumers have to work extra hard to find an account that suits all of their needs for a reasonable cost. The majority of bank customers hold their account with the ‘big four’ and around 60% of customers have kept the same current account for over a decade – which is why there needs to be an immense shift in the market to encourage these customers to switch elsewhere.

“Current accounts have become increasingly expensive for people using their overdraft, as more and more providers adopt monthly usage fees. Traditionally, providers charged interest when customers dipped into the red; however, more providers are opting to charge flat usage fees on top or in replacement of this. This is a result of the banks aiming to offer greater transparency, but in most cases the cost of dipping into the red has become extortionate.

“The banks have fallen over themselves to offer cash switching incentives in the past few years, something that seems to have fizzled out in recent months, and while free cash is tempting, consumers need to make sure they pick an account based on the overall cost rather than an upfront perk.  

“In the years to come, consumers will be hoping for an easier way to compare deals and for more evidence to show it is not ‘risky’ to switch. They will also expect charges to become much fairer and for more notifications on when they dip into the red. However, without an overall limit established across the current account market for both authorised and unauthorised overdraft charges, the banks’ individual caps are going to make very little difference to those paying hefty fees.”

* Moneyfacts’ overdraft records began in April 2008. In April 2008, only 24% of non-fee charging current accounts levied a usage fee for an arranged overdraft, but this figure has now hit 56%. The average monthly overdraft usage fee has risen from £1.26 in April 2008 to a high of £6.93 today.

**Figures include standard current accounts in GB (excluding basic, private, student, graduate and youth accounts). - The Money Search Engine is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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