Increased competition in the banking sector has brought new pressure on the UK’s major banks to offer their current account holders more enticing rewards.
The four main UK banks; Barclays, Lloyds Banking Group, HSBC and RBS; currently control 75% of all bank accounts in the country – a market which generates £8 billion per year.
But an increase in customer rewards offered by smaller current account providers, alongside changes to regulation which make it easier for customers to move their accounts, means that banks are under increasing pressure to give their customers a good deal.
This may mean that customers are to see better rates of interest or other incentives – perks which had all but ceased in the wake of the financial banking crisis of 2008.
Profits made by banks that are partially government owned as a result of the financial crisis have begun turning a profit in recent months, prompting David Cameron to announce plans to sell many government-held shares in Lloyds Banking Group.
Kevin Mountford, spokesman for Moneysupermarket.com, said that ‘There has always been a perception that the current account is a valuable asset because clearly then the banks have our transactional data.
‘But what we have seen…is greater awareness and a political agenda to bring in more competition.
‘I think the big four banks have now realised they can no longer rest on their laurels. Ultimately we as consumers are going to get more choice and that can only be a good thing.’
Current account customers who are regularly in credit are set to benefit the most from increased competition, with many banks current offering interest rates well above the current, stagnant rate of inflation.
Customers with positive balances also benefit from changes in the latest budget which mean that those earning less than £1000 in interest per year no longer have to pay tax on their earnings.
Currently, the highest paying ISA rate in the country (Skipton Building Society’s rate 1.6%) pales in comparison to interest rates offered by current accounts from Santander (who offer 3% interest on up to £20,000), Nationwide (who offer 5% on up to £2,500) and others.
In spite of these offers, a report last year by the Competitions and Market Authority found that relatively few current account customers have chosen to take advantage of new, easier account switching rules.
The report cited consumer apathy as the main cause of most customers choosing not to move their current accounts, however recent new deals offered by many banks to draw in current account customers are expected to cause an increase in account switching.
Banking sceptics are wary of many deals offered by banks, as it is believed by some that deals offered for current account holders are designed to draw in customers so that the bank can later sell them more financially lucrative products, such as credit cards and loans.
Paul Stokes, speaking on behalf of M&S Bank (which currently offers new customers a £100 gift card for switching accounts), said, ‘I don’t think loss leaders or cross subsidising products is helpful for the longer term for the industry’.