Following the NatWest computer fiasco and Barclays’ interest rate rigging, are you tempted to move your cash?
The last week or so has been extraordinary for the banking sector and us as customers. I don’t think even the most hardened cynics would have predicted what’s been happening. Research shows that women tend to be more loyal customers than men, but I’ve been getting a steady stream of emails and tweets from women who want to know where they can move their money to. And the answer may not be straightforward.
There are several different options if you want to switch and there are pros and cons to each:
• Another high street bank: you could choose to switch from Barclays or NatWest/RBS/Ulster bank to another high street name, but the FSA has already said that it’s investigating other banks over interest rate rigging and while we’ve not seen a computer meltdown on the scale we experienced with NatWest, several other banks have had problems.
• A non-traditional bank: Supermarkets such as Tesco have their own bank and Marks and Spencer is due to rebrand M&S Money as Marks and Spencer bank and will launch banking services later this summer. The bank will have outlets in M&S stores but will be fully owned by HSBC. Metro bank launched in 2010, vowing to do things differently, but it only has around a dozen branches in and around London. Virgin Money has taken over the Northern Rock branches and will be rebranding them as Virgin Money stores.
• A building society: not all building societies offer current accounts although the largest ones (including Nationwide and Yorkshire building society) do. The advantage of a building society is that it’s a mutual organisation, which means it’s owned by its members (there are no shareholders) and just because the organisation is owned by its members doesn’t guarantee it will be run well or entirely in its members’ interests.
SAVVY TIP: You won’t necessarily avoid the whole issue of high pay and bonuses either. Nationwide has been coming in for some criticism for its executive pay, with three execs earning more than £1 million each and a healthy rise in pay despite missing some key performance targets.
• An ethical bank: The Co-operative bank is the biggest and best known ethical bank (you can find out about its ethical policy) and it also owns the Smile internet banking brand. These both offer current accounts.
SAVVY TIP: Since writing this, Co-op bank has announced it's to buy 632 branches from Lloyds bank (including Cheltenham and Gloucester branches). This will increase the number of branches it has to 1,000. You can find out which branches are affected by the sale (they're called 'Verde' branches).
• Other ethical banks or building societies. There are other ethical options, but none of them offer current accounts, although they do have a range of savings accounts and/or mortgages. They include Triodos bank, whose parent company is based in the Netherlands. It's been operating in the UK since 1995 and it offers a range of savings accounts including cash ISAs. Triodos has current accounts for ethical/responsible businesses but not for individuals. Ecology building society specialises in lending mortgages for sustainable building and refurbishment projects but it also has a range of savings accounts. Charity bank is a registered charity and bank which lends to projects that would find it hard to get traditional funding. It offers savings accounts including cash ISAs.
SAVVY TIP: Triodos’s website Know where your money goes lists every business it lends money to so you can find out exactly who your money is supporting. Ecology building society doesn’t launch any new products that existing savers can’t access and it doesn’t use introductory or bonus rates.
• A credit union: there aren’t that many credit unions in the UK and not all of them offer current accounts. Credit unions are owned by members and run for them. They offer low interest rate mortgages and some savings products. The Association of Credit Unions has a list of credit unions that offer current accounts on its website.
• Peer-to-peer websites: these can only be used for saving and borrowing. If you want to save with a peer-to-peer website, you lend your money borrowers looking for loans and your cash is split between a number of borrowers (to reduce the risk if any don’t pay). You can find a peer-to-peer lender on the Peer-to-peer Finance Association website. You can read my article on saving with a peer-to-peer lender and borrowing with a peer-to-peer lender.
SAVVY TIP: They aren’t regulated by the Financial Services Authority and so you can’t complain to the Financial Ombudsman Service if you have an unresolved complaint and any savings you have aren’t protected by the Financial Services Compensation Scheme.
What to think about
If you want to move banks, here are a few things to consider.
1. You don’t have to move all your banking to the same bank. If the NatWest computer breakdown has taught us anything, it’s that it may be a good idea to split your banking so you can access some money elsewhere if there’s a problem.
2. Check how your money is protected. Banks and building societies that operate in the UK normally have to be authorised directly by the FSA. That means your savings are protected up to a limit of £85,000 by the Financial Services Compensation Scheme if the bank or building society fails (although this limit can be split between brands owned by the same bank). This applies to the smaller building societies and to credit unions. Charity bank and Ecology building society are directly regulated by the FSA and so covered by the Financial Services Compensation Scheme. Some financial institutions based in the European Economic Area can be indirectly regulated by the FSA (the system is called ‘passporting’) which means they can be covered by their home country’s savings protection scheme. Triodos is covered by the Dutch compensation scheme (as is the bank ING Direct).
3. Switching will get easier. At the moment, despite what the banks say, the switching process isn’t always straightforward. The problem comes when something goes wrong when the bank you’re leaving and the one you’re switching to may blame each other. From the end of 2013 (at the latest) the switching process will get quicker and the bank or building society you’re switching to will have to sort out any problems.
SAVVY TIP: You can read more in my article What to look for if you're switching bank accounts.
There's more information about where you can move your money on the website Moveyourmoney.org.uk.
If you're interested in green and ethical options, I've written a book called Green Money; how to save and invest ethically
There's also a website called Yourethicalmoney which has a section where you can find out how ethical your bank is.
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