Clearer, fairer current accounts

A new ruling means current accounts just got better - for all of us...

It's often said that people change their partner more often than they change their current account -- so it's little wonder that banks offer such decent switching incentives to bag a customer. Once they've got you and your direct debits, it's pretty unlikely that you'll leave.

But that shouldn't be the case. Changing your current account is not as difficult as it used to be and you could get it done and dusted in a matter of weeks with little fuss.

Plus last week the Office of Fair Trading made an announcement that will make it easier for all customers to compare their current account with others and fully understand how much they are being charged for banking.

And, crucially, it's going to become easier for customers to switch.

What has the OFT said?

Last week the body announced that banks have agreed to make personal current account costs more transparent and the switching process more reliable and trusted. 

This 'agreement' follows last year's OFT study into the current account market which identified three major problem areas:

• 1. Lack of transparency of costs
• 2. Difficulties over switching
• 3. The way in which unarranged overdraft charges work.

The study concluded that the £8bn current account market did not work well for consumers. And since last year the OFT has worked with banks and consumer groups to look at how this could be improved. 

What have the banks agreed to?

Transparency

The banks have said they will improve transparency so that consumers can more easily understand the costs of their current accounts and compare them with others.

They will:

• Introduce an annual summary of the cost of the account to help customers, in a similar way to annual car or house insurance renewal quotes
• Make charges prominent on monthly statements, so that consumers are more aware of them
• Provide average credit and debit balances, which will help consumers estimate the potential benefits of switching bank
• Produce illustrative scenarios showing unarranged overdraft charges, giving consumers an idea of the costs for different patterns of use.

Switching

Banks have pledged to improve the switching process, and are working with BACS (the payment processor) to reduce problems that arise from transferring Direct Debits, and to reduce the impact that any of these problems have on the customer.

Charges

One area that isn't yet resolved is that of unauthorised overdraft charges and work is ongoing, according to the OFT.

As well as last year's market study, it is also undertaking a separate investigation into the fairness of unarranged overdraft charges, and says it expects to make more substantive comment on this area 'in due course'.

What does it mean for you?

The OFT announcement is great news for consumers as more transparent bank accounts will make life easier for all of us.

Plus easier switching processes will give more people the confidence to move their account, rather than stay loyal to a bank that isn't truly meeting their needs.

Ultimately, when banks make these improvements, the current account sector will become more competitive -- always a good thing for the punter.

But, what if you want to switch your banking provider now? Which accounts are best?

In the black?

The best current accounts depend completely on what you want as there are many different types -- in-credit, overdraft, packaged, incentive and basic for example.

If you are in the black most of the time you might prefer to look for an account that offers a high in-credit rate, as you don't need to worry if the overdraft rate is high. After all, it doesn't matter if you are never charged it -- though never say never!

Below are some of the best:

In the red?

If you really need a low rate overdraft, you may not be too concerned about the in-credit interest rate.

Some accounts offer an interest-free buffer of £250 for example which can be useful if you only slip into the red a little at the end of the month. But they may charge more if you go over this, so if you know your overdraft will be significant you need to look for a low rate of debit interest. Below are some of the best:

Cashback for switching

Increasingly providers are tempting customers by offering cashback to those who move over. And if the current account is right for you, why not?

But remember to look at all the rates and charges, not just the pound signs flashing before your eyes.

Here are three current incentives:

More: Make £200 switching your current account | The top five current accounts