Articles | Current accounts 'not working' well

Current accounts 'not working' well

Published: Wednesday, 16 July 2008, 12:42PM

Customers aren't getting a good deal with their current accounts because they're too complex, a study from the Office of Fair Trading (OFT) has said.

A "significant" number of customers do not know how much they pay in bank charges, either before or after they are incurred, the watchdog added.

OFT chief executive John Fingleton said: "Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving customers well."

The OFT said UK banks earn £8.3 billion in revenues from personal current accounts, including £2.6 billion in overdraft charges.

Another £4.1 billion is earned from net credit interest income - or interest that account holders should be earning but which is going to banks.

Personal current accounts hold a combined £100 billion, the OFT said.

The study comes in the wake of the OFT's recent High Court victory on the issue of unauthorised bank overdraft charges, which paves the way for a second hearing to decide whether the charges are unfair and what a fair charge should be.

Banks have appealed against the verdict, and the second hearing will be delayed until this is settled.

The OFT said that banks earn an average of £152 per active personal current account, but some customers end up paying much more due to "opaque" charging information.

"The complexity and lack of transparency of personal current accounts makes it extremely difficult for individual customers to compare their bank account with other offers," the watchdog said.

"A further result is that a minority of customers end up paying much more for their current account than others."

The OFT calculated that 1.4 million people paid more than £500 per year in charges.

Mr Fingleton said: "Customers lack the information they need to choose the best deal, and this in turn weakens the banks' incentives to compete.

"There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future."