Current account switchers have received an estimated £243m* in ‘golden hellos’ over the last three years, an average of £79 per switcher, but risk eroding the incentive away because the cost of dipping into the red with some providers is so high, according to research from The Co-operative Bank.
Competition for current account switching has seen over three million** people switch accounts in the past three years, with many tempted by attractive switching offers.
However, despite these headline offers giving real cash benefits for many switchers, for the one in three (32 per cent) who rely on an overdraft to support their day-to-day spending, these initial incentives are likely to have been eroded away by overdraft charges.
Dipping into an authorised overdraft costs account holders an average of £6.93 a month, meaning those who regularly end up in the red would see the value of their incentive depleted – with one in 10 (13 per cent) switchers who use their overdraft every month seeing it wiped out within a year of moving to a new provider***. Those using an unauthorised overdraft, or exceeding their agreed limit, would see the value of their upfront incentive disappear in less than two months, with average charges amounting to £53 a month.
Despite the frequency with which some use their overdraft, just one in five (20 per cent) of those who have moved to a new provider in the past three years considered the overdraft provision of their new account when deciding to switch.
Another benefit to consider for current account switchers who need to use an overdraft to get by day to day is whether the account has a rewards incentive, or any other features that become null and void if the account goes into the red, whether that is authorised or unauthorised usage.
Matthew Carter, Products and Marketing Director, at The Co-operative Bank, said: “Many of the three million successful switches over the last three years will have included an upfront incentive offered by a new provider, however, our research highlights the importance of looking beyond an initial offer, and considering the long-term value and features of the account. People should think carefully about how they’ll use their account then select the deal which best suits their needs – in an effort to avoid any costly surprises in the future. The headline offer and additional benefits are of little use if you are dipping into the red and eroding the value being offered, or are missing out completely on the added incentives just by being in the red.
“Our overdraft for our customers puts them in control of their finances and ensures they are not penalised for small mistakes, such as dipping into the red for just a few days. Guided by research with our own customers, those of other banks, and consumer group Which?, we reduced our charges, and introduced an industry leading quarterly cap of £60. Unlike the majority of other Bank’s we continue offer rewards to customers even if they go overdrawn, so customers can get the maximum value from earning up to £216 in year one on switching to us and earning Everyday Rewards, even if they utilise an overdraft facility.”
Key features of The Co-operative Bank overdraft:
Notes to editors:
*Research of 2,000 UK adults carried online, 6-8 September 2016.
References to ‘switchers’ refers to those current account holders with an overdraft who have switched within the past three years.
**Since the CASS began, there have been 3,077,444 switches (https://www.bacs.co.uk/DocumentLibrary/CASS_dashboard_-_published_20_July_16.pdf).
According to research conducted by the Co-operative Bank, switchers received on average £79.22 , therefore in total £243,803,337 has been received by switchers.
About The Co-operative Bank
The Co-operative Bank plc provides a full range of banking products and services to around 4.4 million retail and SME (Small and Medium Sized Enterprises) customers. The Bank is committed to values and ethics in line with the principles of the co-operative movement.
The Co-operative Bank is the only high street bank with a customer-led ethical policy which gives customers a say in how their money is used. Launched in 1992, the Policy has been updated on five occasions, with new commitments added in January 2015 to cover how the Bank operates its business, products and services, workplace and culture, relationships with suppliers and other stakeholders and campaigning.