Jeremy Gates reports on why banks are fighting for your current account with cash prizes

WHEN Britain’s high street banks launched a charm offensive to win new current account customers earlier this year, some observers feared their strategy concealed a cunning plan.

Betting that the Independent Commission on Banking, chaired by Sir John Vickers, would trigger a demolition of Britain’s ‘free-banking’ model, sceptics suggested that the banks would grab lots of new customers before clobbering them with charges in a few years time.

Most people, after all, hold only a few hundred pounds or a thousand or two in current accounts, if anything at all. So, why the sudden strong interest?

David Black, at Defaqto, a financial research company, says: “The current account is really a key relationship with a client.

“From a current account, the bank finds out what you can afford, and your liabilities, on a regular basis.

“The current account reveals far more about a person’s financial position than a credit card, for example.”

While Vickers’s recommendations did point in the direction of charging account holders more than many currently pay, the plans could take some years to implement.

But goodies, incentives and special deals for those who open a current account with a high street bank continue to gush: they want your business, regardless of whether you are in the black or the red.

According to personal finance magazine Moneywise, a consumer who keeps switching accounts could bag a total profit of £700 before, possibly, going back to the bank they started with.

For example, a £200 gift awaited anybody who switched an account to The Co-operative Bank – provided they also moved all direct debits and standing orders across and paid at least £800 a month into the account for the first three months.

Kevin Mountford, at financial website MoneySupermarket.com, was impressed.

“It is good to see the Co-op taking on the big five banks.

“The deal comes off the back of The Co-operative Bank enhancing its current account products to provide additional benefits for a monthly fee.

“The Co-operative Bank’s customer service regularly receives industry honours, so this could be a good alternative for anybody unhappy with their existing bank.”

Consumers obviously agreed. The deal vanished after five days.

“Presumably they got a lot of applications,” says Black.

Andrew Hagger, at financial website Moneynet.co.uk, added: “With its record for customer service and a bigger branch network from the link with Britannia, The Co-operative Bank was going to stir a lot of interest,” he says.

Hagger is a fan of First Direct, HSBC’s online bank. Currently there’s a £100 gift for switchers to its 1st Account, where a £250 interest-free overdraft is standard.

First Direct also allows current account customers to put a maximum £300 per month into a regular savings account paying 8% for a maximum 12-month period – a great return on a maximum £3,600 in these tough days for savers.

Hagger says: “First Direct scores highly in consumer surveys on quality of service; the UK call centre, open 24 hours a day, doesn’t try to sell you anything when you call. They just do what you ask.”

Perhaps the big surprise is the drive by Santander.

It has three ‘carrots’ to tempt switchers: Existing mortgage customers with Santander who switch their current account and savings of at least £10,000 get a £300 gift; mortgage customers who switch only their current accounts get a £200 reward; and other consumers, with no links with Santander, get £100 for moving their current account.

Once they have moved, new customers in Santander’s Preferred Current Account enjoy 5% interest on their current account, on balances up to a maximum of £2,500. To collect this generous rate of interest, customers must ensure at least £1,000 per month goes into their account.

Yet despite these offers, many current account holders see switching as a cumbersome, worrying process if direct debits and standing orders go astray.

The Independent Commission on Banking reckoned that with an average switching rate of 3.8% per year, we stay in the same current account for an average of 26 years.

In its ‘On Your Side’ campaign, Nationwide Building Society aims to tackle this concern head on. With specialist teams to speed up transfers, it guarantees to contact all the switcher’s direct debit companies within 10 working days, or give the switcher £100 compensation.

Nationwide’s FlexAccount, launched in 1987, has around five million current account holders. More than 1,000 customers a day are currently signing up.

The perks of this account include free European multi-travel insurance to age 74, cheap foreign currency transactions and access to the Nationwide’s lowest-ever personal loan rate (from 6.2% on £7,500- £14,999).

John Crossley, Nationwide’s head of current accounts, says: “We want to take the stress out of switching. With us, switchers are safe in the knowledge that their payment companies will be notified quickly, or they get £100.”

Black thinks the offers and goodies will continue for a while yet; already Barclays is matching Santander’s offer of interest-free overdrafts for one year, for applicants who deposit at least £1,000 per month and use the new account as their main one.

He also likes the Halifax Reward current account, which pays £5 per month on monthly deposits of £1,000.

“That must be the most generous offer around at present,” he says.

For those who use debit cards regularly abroad, Defaqto gives pride of place to current accounts by Metro Bank, a newcomer to London and the area within the M25, Cumberland Building Society and Norwich & Peterborough. All three make no charge. Conversely, however, some banks have been raising charges on packaged accounts, where consumers pay a set monthly fee, averaging £15.50 per month, for benefits over and above their current account such as travel insurance, mobile phone cover and motor breakdown cover. Halifax raised its monthly fee to £15 from September 1.

Black adds: “Look closely at what is on offer before you pay for packaged accounts. If incentives suit your lifestyle – for instance, free winter sports cover for ski enthusiasts – the monthly charge may be justified.

“If it isn’t, take a standard current account. The choice could get better as big players chase your custom.”

INFORMATION: Nationwide Building Society 0800 121 6943 and www.nationwide.co.uk; Santander 0800 731 7774 and www.santander.co.uk; Metro Bank 08457 302 010 and www.metrobank.co.uk; First Direct 08456 100 100 and www.firstdirect.co.uk; Defaqto www.defaqto.com