New Which? research has found that consumers are potentially losing thousands of pounds a year in fees and charges by being with the wrong bank, and can’t easily compare accounts to switch.
Which? compared overdraft charges, interest paid for being in credit, and the cost of using your debit card overseas between 21 current account providers and we found customers with the wrong bank account could be paying out more than £2,000 a year in fees and charges.
We found that in our worst case scenario, going overdrawn without permission and having payments rejected could cost an extra £183 in fees and charges a month with the most expensive account, Bank of Ireland Clear Account Level 1, compared to the least expensive, the Halifax Reward Current Account. If you did this every month, it would add up to a massive £2,197 over a year.
Authorised overdraft charges
Even if you only use an authorised overdraft for just a few days a month, you could be around £120 worse off a year if you bank using TSB’s, Lloyds’ or Bank of Scotland’s Classic Account, rather than Clydesdale Bank or Yorkshire Bank’s Current Account Direct. Our latest consumer insight research shows up to five million households are using their authorised overdraft facility.
Consumers could avoid these fees if they switched to an account that is better suited to their needs. For example, Halifax’s Reward Current Account is cheapest for using an unauthorised overdraft, but it is one of the most expensive for authorised overdraft charges. But the information that banks make available to customers at present doesn’t allow people to compare accounts based on their needs.
Consumers struggle to compare accounts
Unfortunately bank charges are just one side of a more complex problem. In a recent survey of Which? members we found 52% of consumers (excluding those with packaged accounts) who haven’t switched banks say they’d be more likely to if it was easier to compare accounts, yet only a quarter agree that this is easy to do at the moment.
Previous Which? research has found that current account charges are so complex that consumers cannot work out the cost of running an account.
Which? calls for banks to release customer data
With the cost of living top of the agenda, ahead of the Autumn Statement we are calling on the Chancellor to step in and use powers he already has to force banks to release data about how customers use their accounts. This can be used to develop comparison tools that allow consumers to rank providers by cost based on their needs.
Banks already have this data and are using it to design products and services but they don’t all share it with their customers in the same way. Which? is calling for banks to make this information easily accessible and usable to consumers in a format consistent across all providers, so they can see which bank account is best for them and avoid hefty fees.
Richard Lloyd, executive director at Which?, said: “Our research lays bare the huge difference in fees and charges between current accounts. With many households relying on their overdrafts to cope with the rising cost of living, we’re calling on the Chancellor to force banks to release information so consumers can make sense of the way they use their account and choose the one that is best for them.
“Unless banks make it simple for people to compare the cost of running a current account, the new switching guarantee alone will fail to transform switching rates or significantly increase competition in banking.”