FOOL'S EYE VIEW
Bank Your Way To Greater Riches

By David Kuo (TMFDragon)
May 16, 2002

Many, if not most of us, open our first bank account when we either start life at college or embark on our first job. And once we establish our relationship with that first bank, which has very kindly offered to look after our money for us, we tend to stay loyal to them for many years to come. Initially, our grant cheques or wages will be paid directly into the account. Then as time goes on, we will arrange for direct debits and perhaps other credits to be made through the account too. Before we know what has happened, the transaction trail starts to get out of hand and scores of debits and credits are going through our account on an almost weekly basis. We will probably have other accounts with the same bank as well. These could include a savings or deposit account where we can conveniently sweep our surplus funds to get a higher rate of interest.

That cosy relationship with our first bank could go on for years. We are loathed to change banks; firstly, because we just can't be bothered to; and secondly, because the thought of having to transfer all those direct debits and credit is just too painful to contemplate. There is also a third reason: a lack of knowledge about what could be on offer elsewhere. So through a combination of inertia, laziness and ignorance, we remain loyal to our first bank.

Rip off

So whose fault is it that the banks, in particular the High Street banks, interpret our indolence as a sign of satisfaction? As consumers, we are free to move our money to almost any account provider we choose. A spokeswoman for Lloyds TSB (LSE: LLOY) recently said: "They [our customers] choose to bank with us and if they are not happy, they move." The comments were made in response to a finding by Which? Magazine that suggested the UK's biggest banks are ripping customers off to the tune of £500m a year. The magazine pointed to the abysmal rate of interest paid on balances on current accounts, which presently stands at just 0.1%. You can get rates some twenty times higher if you look around. Also according to Which?, the exorbitant overdraft charges at the 'Big Four' High Street banks should be cut by half to 10%.

It's not just Which?, the champion of the consumer, that is gunning for the High Street banks. The Big Four clearers have also come under fire from the Treasury select committee over excessive profits being made on the accounts held by Small & Medium Sized Enterprises (SME). It is possible that the select committee could recommend controls to ensure that banks are curbed from overcharging small businesses.

The question that we should be asking is not whether the banks are profiteering from their customers, but how we should respond if we are in any way dissatisfied with the service that we are getting. Inertia on the part of customers will be reciprocated by inaction on the part of the bank. Banks, like all other profit-making businesses, will be driven by a desire to maximise income within the business environment that it operates in. They have little desire to offer lower overdraft rates or indeed higher interest rates on current accounts if there is no overwhelming need to do so.

Walk away

As consumers, if we are unhappy with our lot then voting with our feet is by far and away the best way to get that better deal. We should remember that moving our bank accounts can be quite simple and certainly not the nightmare that some would have you believe. Start by looking around for another service provider -- the Internet is as always a good place to start! Once you have found a suitable alternative, you can sometimes escape the branch visit and just apply online.

Transfer your account across slowly and don't try to do everything all at once. There is currently a voluntary code that requires your existing bank to provide details of all your standing orders and direct debits to your new bank within five working days. Additionally, they should aim to complete the account transfer within five weeks. But remember that the code is, after all, voluntary and the banks cannot be penalised if they fail to comply within that time frame. So transfer the details over yourself. Contact each of your creditors directly and provide them with your new bank details but remember to keep a record of all your correspondence. It will be invaluable if anything goes awry. When, and only when, you are satisfied that the new bank account is running smoothly, contact your old bankers and bid them adieu.

Learn More About Changing Your Bank: Visit The Motley Fool's Online Banking Centre