Current accounts have hit the headlines a lot recently. High-interest accounts have garnered a lot of attention while the switching process and challenger banks have also been in the news, but unfortunately that news hasn't always been positive.
In fact, the confusion surrounding current accounts has recently been highlighted by the Competition and Markets Authority (CMA), which is considering calling for an industry review.
There are currently around 250 bank accounts on the market made up of packaged, high interest, current, basic, student and graduate accounts, and they could all be subject to an inquiry. Charges, it seems, are a particular point of contention.
Sylvia Waycot, editor at Moneyfacts.co.uk, explains:
"The number of charges and scenarios on current accounts can be very confusing. This is because the way we spend tends to vary from month to month as we cope with bills, birthdays and holidays.
"Those in credit who do not use overdrafts have little to worry about, but those who do use their overdraft regularly can see charges vary dramatically from month to month, especially when the unplanned happens."
Essentially, people are going to have very different needs when it comes to their bank account, but it isn't always easy to see which one is best suited to those requirements.
Let's say you dipped into your overdraft regularly. That means you'll be looking for an account with a decent overdraft rate… but make sure you think about unauthorised as well as authorised overdraft charges. Consider these scenarios:
"This shows that an account that doesn't charge a monthly fee is cheaper for authorised overdrafts," said Ms Waycot. "However, slip into an unauthorised overdraft and the tables are turned.
"If you slipped into an unauthorised overdraft by £100 for one day with account one, causing one £30 item to be paid on your behalf, you would incur an additional payment charge plus the associated overdraft charges for £100, ending in a total charge of £59.58 (£25 monthly fee, + £34.50 unpaid fee + 8p interest = £59.58).
"But slipping into an unauthorised overdraft with account two would only cost £16.05."
As you can see, it could pay to consider the options. The slightly higher authorised overdraft rate of account two would be a small price to pay compared to the unauthorised charges of account one, so it's worth taking the time to think about your financial situation.
However, don't think that the simplicity of a daily charge will make you better off either, as even this requires careful thought. Ms. Waycot cautions: "Daily rather than monthly charges have become more popular with some banks who cite transparency and ease of understanding as the reasoning. However, a daily charge of £1 would see the authorised fee jump to £15.00, and yet should you slip into an unauthorised overdraft, the charge is much smaller at £5.00.
"It's hardly surprising that current accounts are under an uncomfortable spotlight and there are attempts being made to address the lack of transparency. But as daily charging shows, clarity has in many instances failed to reduce charges."
So, the CMA investigation could well be good news for consumers. It's hoped that it'll revive competition in the sector – which will ideally be helped by challenger banks entering the market – and make it fairer and more transparent for customers so it's easier to compare accounts.
Ms. Waycot concludes: "Charges should not be a mystery to work out nor a nasty surprise, and they certainly shouldn't be so complicated that only those with a clear head can face calculating them.
"The only way for real clarity to occur is for all current accounts to follow the principle of personal loans, where borrowing is subject to one APR calculation which includes the costs of rates and fees that are paid if the borrower uses the service. After all, you wouldn't expect to find one personal loan charging an APR and another a daily or monthly fee." Why should current accounts be any different?
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