Earlier this year, the Independent Commission on Banking (ICB) report recommended:
- the ring-fencing of retail activities from investment activities
- easier processes for customers to switch bank accounts
- more competition between banks
These recommendations were called 'radical' by many. While the government is on a timetable to deliver change in the banking sector by 2019, it also said that some reforms would be introduced sooner. This week, Mr Osborne (the Chancellor) announced his intention to publish details of how the ring-fencing reforms would work by mid-December this year.
The proposed reforms to the switching process and increased competition between banks, meanwhile, could have a major impact on the way we manage our bank accounts.
More competition between banks
The 'big five' banks on the High Street are RBS, Lloyds, Barclays, HSBC and Santander. They hold the largest market share of bank account customers, which some see as unfair and limiting choice for the consumer. However, there are alternative bank account providers, from the Co-op to Halifax.
According to easier.com, the Co-op recently reported it had 30,000 requests in just two weeks from customers wanting to switch their current account to a Co-op account offering a £200 cash incentive. 90% of its new customers came from one of the 'big five' banks.
The idea of 'switching' your current account is closely linked to the idea of greater competition, since people should generally be more likely to move to a new bank account if it's simpler to do so.
At the same time, having more competition in itself can mean more people will be encouraged to switch their current account, as it may be easier to find a more suitable account for them.
Switching current account
It's been widely reported that many people don't switch their current account very often - if at all - and most of us can stay with the same bank for years. There are a number of reasons for this: apathy is commonly seen as one, while wanting to avoid the perceived 'hassle' of switching accounts is another.
However, The Independent recently reported that complaints from bank account customers were up by almost 25% in the last quarter. If customers are genuinely unhappy with their bank account, they could switch - but many don't.
So what would encourage someone to switch current accounts at the moment? If you're not entirely happy with the service you receive from your bank, you could switch to one you believe would provide a service that's more suited to your needs - perhaps a current account with budgeting help from Money Managers, like the bank account from thinkbanking.
If you switch your bank account for a financial incentive, it's important you check if you'd qualify for the account before you make any firm decisions - some current accounts would require a deposit of up to £1,500 every month, for example.