Guide to seven day switching
On 16th September 2013, a new Current Account Switch Service (seven-day switching service) was introduced, after recommendations from the Independent Commission on Banking.
It was found that the major UK high street banks, including Barclays, HSBC, Lloyds and Royal Bank of Scotland were dominating the market. With a lack of competition and nothing to motivate people to switch, the vast majority of UK customers were effectively stuck with poor customer service and low to zero in-credit interest rates.
One of the reasons that customer were unlikely to switch was the time it took for the process to complete and concerns that important direct debits might be unpaid during a lengthy switch.
However, the new “switch guarantee” means that the long waiting period for switching current accounts has been cut to seven days - causing four in ten consumers to say they're more likely to change account, therefore benefiting from the best deals available.
Although not compulsory, 33 banks and building societies signed up to the switching guarantee, including all the major current account providers.
How does seven day switching work?
To apply to switch bank accounts, customers have to fill in two forms: a Current Account Switch form and Current Account Closure Instruction form.
The paperwork is given to the existing bank and the new provider - everything else is taken care of by the banks. Applicants will be contacted and informed that the switching process has begun.
The Current Account Switch Service (CASS) means that when consumers apply for a new account, their incoming payments, direct debits and money should be transferred within seven working days. Customers can continue to use their existing current account until their switch date, which they will be notified of.
One of the main reasons that consumers are so reluctant to change accounts is the worry that payments might be missed. However, the new guarantee services means that customers will not be charged for missing payments as a result of the switch.
Incoming payments made to the previous account will automatically be redirected to the new account for 13 months, giving payees plenty of time to take note of the new details.
Nick Payne, retail banking consultant, SAS UK & Ireland comments: "Almost half (49%) of the consumers polled in our survey said they would be more inclined to switch if their bank had failed to rectify a mistake that had personally affected them"
What to watch out for when switching?
The new bank is responsible for ensuring that all direct debits, standing orders and payments are switched to the new accounts, but there are some things that the account holder needs to take responsibility for as well.
Recurring payments, or continuous payment authorities, are not covered by CASS because they are usually set up with debit cards, rather than account numbers. These payments are often used for mobile phone bills, personal loan repayments and gym memberships. Anyone with recurring payments needs to provide the businesses concerned with their new card details.
It's also worth being aware of how long it will take to access the account. Although the switch may be completed within the seven working days, it could take longer to receive a PIN or online banking log-in details.
Previous switching inertia
Prior to CASS being introduced, it could take anywhere between 18 and 30 days for the switching process to be completed.
The long delays - often caused by direct debit originators, such as energy providers - meant that people were inclined to stay with their existing bank. So much so, on average, people in the UK were switching their current account just once every 17 years. However, with the barriers removed, it seems that more people are open to change their banks through better offers not just staying through loyalty.
Why it's important to switch accounts
Independent research suggested that around five million consumers are now planning on switching banks within the next year - compared to two million last year. Some of the incentives now being offered by the banks could earn customers hundreds of pounds a year, as well as benefitting from improved levels of customers service.
CASS gives people the opportunity to see if they could earn more money from a different bank, without the hassle of delays and missed payments.
One of the few problems for people looking to switch will be if they are looking to add credit facilities to their current account. Applicants will have to undergo the usual credit checks before having an overdraft approved.
It's this competition that makes it important to switch, or at least compare what is on offer.
Comparing current accounts
When choosing a new current account, its important consumers look at the market carefully to find one that will best suit their needs.
With more people choosing to switch accounts, the banks are advertising promotional deals to encourage people to join them. When comparing accounts, don't be swayed by these deals!
All introductory offers and other benefits should be worked out into a total amount earned per year - for at least two years.
Think about how the account will be used, for example, those that are always dipping into the red will be more concerned with the overdraft fees than the in-credit interest rates. Whereas a heavy spender could find that they can earn with a reward scheme. Some of the incentives on offer are very valuable, but it's best for customers to consider how they use their account before being tempted by headline promotions.