Is it time to switch banks? 46% of Moneywise users have already voted with their feet
Moneywise has been digging through the feedback you gave us about your banks and building societies for our 2016 Customer Service Awards (CSA), and the data proves what we’ve long suspected – many Moneywise readers are savvier than the average consumer and they get better deals as a result.
We always knew you’d be more likely to shop around and ditch your bank if you weren’t happy, but we didn’t realise just how many people do so.
According to the competition watchdog, the Competition and Markets Authority (CMA), only 3% of people up sticks each year and switch to another bank or building society. But a massive 46% of the 24,000 people who responded to our Customer Service Awards survey have voted with their feet and dumped their bank account when faced with poor service, poor rates, or when the last branch in town gets shut down.
In fact, 15% of you have moved bank more than once, potentially picking up hundreds of pounds in the process through the generous incentives that many banks dangle before prospective customers.
That said, the majority of respondents haven’t moved bank account before and a third said they have had the same current account for more than 20 years. No doubt that’s because many of you like your existing bank – as one reader puts it: “Why change when you are happy?” However, if you’re not happy, don’t be put off by the potential hassle of moving.
Since 2013, the Current Account Switch Service (CASS) has made the whole process of moving bank easier. Switch through the CASS, and it should take no longer than seven working days to get your new account.
All of your regular payments, such as direct debits and standing orders, will automatically be carried over, so you won’t need to cancel everything and start again.
And better still, any payments to your old bank account will automatically be forwarded to your new account for three years, and the CMA is considering extending this feature indefinitely.
Plus, if anything goes wrong at any stage of the process, the Switching Guarantee ensures you won’t be left out of pocket.
According to Moneywise readers, the CASS is working pretty well. It hasn’t completely eliminated problems when changing account, but it has cut them substantially.
Our survey found that for every hundred people who switched current account more than 10 years ago, 33 had some small problems when they did so. But in the past three years, just 20 people per hundred had some problems getting a new account. The number of people who had major problems has also fallen substantially – from 3% of people who switched more than 10 years ago to 1.6% of people who have switched in the past three years, though that’s less clear in the charts due to rounding.
One word of warning, though – many readers choose to open new bank accounts off their own backs rather than rely on the CASS, meaning they don’t get the benefits of the guarantee. There is a good reason why people do this – if you go via the switching service, your old account will be closed, which is no good if you want to have two accounts; or perhaps to get a better interest rate on your savings from one account, while earning cashback on your spending with another.
The CMA is considering proposals to let people keep their old current accounts when using the CASS. We’ll let you know its decision when it reports back later this year.
(Click the table below to enlarge.)
Which banks are winning new customers?
Around one in 20 Moneywise readers have switched current account in the past year or so, and a handful of banks have picked up the lion’s share of new customers. In fact, a third of all current account switchers went to Santander or First Direct, albeit for quite different reasons.
Santander’s flagship 123 account with its cashback on household bills and interest of up to 3% on balances of up to £20,000 is a big draw. However, fees on the 123 account rose from £2 a month to £5 a month in January, which many readers didn’t like. One of the comments fit for publication was: “I would be completely happy if it wasn’t for the increased monthly account fee.”
First Direct, meanwhile, tempts new customers with the prospect of £100 cash, but it’s the customer service that keeps people from leaving. It’s hard to put a cash value on customer service, but First Direct’s must be worth at least £100, as that’s what it will pay you to leave if you are not happy after six months.
The branchless HSBC subsidiary received minor criticism from a few long-term customers, who noted waiting times for telephone banking have increased slightly. However, this customer’s comment reflects the majority view: “When I have phoned up [First Direct] with a problem, it has been answered immediately by someone who speaks English, knows what they are doing and who doesn’t try to sell me things I don’t need. It feels like it really is trying to help.”
Halifax and Metro Bank both did well in terms of picking up new customers, too.
Halifax appealed to people seeking introductory bonuses, as it also offered £100 to new customers for much of last year. Its £5 monthly reward to customers who stay in credit also won over a few readers.
While Metro Bank might not offer the most competitive rates, its novel approach of treating customers like people seems to be paying off. In the words of one relieved reader: “It’s the only bank that offers me tea and coffee when I go in. And it has customer toilets!”
Metro Bank is also winning over fans by making in-branch services more accessible through long opening hours and extending its branch network. Another reader, whose views were held by many, put it most succinctly: “You can go in 362 days of the year, and branches are open until 8pm in the week, which is good for people who work.”
Together with First Direct and Santander, these banks gained more than half of the people who opened an account in the last year.
Which banks rely on customer inertia?
Four out of five respondends to the survey who use Yorkshire Bank, HSBC or Royal Bank of Scotland (RBS) have held their current accounts for at least 10 years. Among Yorkshire Bank customers, two thirds have held their accounts for at least 20 years.
Similarly, three quarters of customers at HSBC and Barclays have never switched bank account. At the other end of the spectrum, only a third of customers at Santander and First Direct have never switched bank.
The table below highlights which customers aren’t switching. (Click to enlarge.)
How did challenger providers perform?
The big six high street providers, Barclays, HSBC, Lloyds, Nationwide, RBS and Santander and their subsidiaries, such as Halifax and First Direct, have the vast majority of customers in the UK.
However, they are by no means universally bad, with some of them scoring very highly in our 2016 Customer Service Awards – the full results will be published in August.
However, as a collective, they’re often thought to rely on customer inertia. Smaller building societies and ‘challenger banks’ need to work harder to win and keep new customers, and our results show they have better customer service ratings.
We asked readers to score their bank on a scale of one to five. One being poor, three average, and five excellent. You’ll see that even with the biggest providers, most people are broadly happy, but those who opt for challenger banks and building societies are much more satisfied all round – as the illustration above highlights.
(Click the table below to enlarge.)
How do we bank in 2016?
In 2016, it seems we’ve finally reached the tipping point for online banking. More than half of readers had a clear preference for banking online and three quarters use online banking services in some capacity.
But there is a loyal core of branch-only customers still out there. Around one in nine customers only want to bank in branch, and a third like the option of branch access.
In-branch services can be a good way to impress customers – we even had one reader who stayed loyal to her bank after being rejected for an overdraft because her child got to play ‘banker’ at a vacant desk. Mobile banking via apps is also on the rise, although it’s not fully established yet and there are big differences between what services providers offer.
Barclays’s app was highly regarded, with one reader saying it was the reason he stayed with the bank. Universal gripes about apps included apps not offering full banking functionality – for example, not letting you set up new payees, as well as log-in hassles.
Many HSBC customers, in particular, didn’t like the fact they had to enter hard-to-remember ID numbers to access the service, though the bank is rolling out voice-recognition security which should make accessing your bank account that little bit easier. It’s already got one reader’s thumbs up: “New ‘voice security’ is just what it should be doing. BIG TICK!”
(Click the table below to enlarge.)
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.