The banking world will see a huge shake-up today, as Lloyds TSB splits into Lloyds and TSB. Then from next week a new scheme to make switching accounts easier is introduced, with banks launching bribes to win your custom.
To help everyone make the most of the changes, Martin Lewis is here to explain exactly what is changing and what it means for customers.
I’m a Lloyds customer. What’s happening?
From today, of the 1,931 Lloyds TSB branches across the UK, 631 will be rebranded as TSB meaning 4.6million people - including Lloyds TSB Scotland, Cheltenham & Gloucester and some other customers – will move across. All the remaining branches will change to Lloyds Bank.
Yet for now, there’s no change to the actual products - those with current accounts, savings and mortgages won’t see any change to their rates or products for the time being. Though it’s worth pointing out that doesn’t mean you have a good deal. Many of Lloyds TSB’s current products are pants, and you should be looking for better deals elsewhere.
For savers, the two banks are now separate and each has a separate £85,000 per person UK savings guarantee.
All change for bank account switching
Starting a week today, banks are promising a new, easier system of switching from one bank account to another, compared with the current switching system that some banks have in place. This has been done in response to government pressure to make the market more competitive.
Currently it can take between 18 and 30 working days to switch account, but the new seven-day switching guarantee coming into force means that on the seventh working day, you’ll be able to access your new account. Up until the seventh day, your existing account will function as normal – so all payments in and out will be taken or paid in when they’re due.
When you use your new account from the seventh day, you’ll see that all payments coming out, such as direct debits and standing orders have been moved over. Plus the really big change is that payments that go into your old account (such as your salary, etc) will be auto-forwarded to your new one, so you won’t miss out. After the switch date, payments either accidentally sent to the old account, or which are attempted to be taken from it, will be redirected to the new account for 13 months.
See the Payments Council seven-day switching info for more.
Free money for switching bank account
The banks are fighting hard for your custom – many are even paying bribes, so weigh up whether you’re really getting the service you deserve and consider ditching and switching. You could wait until next week’s guarantee comes into place, or just do it today, as many banks have a switching system up and running already (even though it’s not guaranteed). Though all accounts will need to credit score you for acceptance.
For full help in choosing an account, see Martin’s Best Bank Accounts guide. Some of the top picks include… * Free £125 and service champion. First Direct has won every customer service poll I've done, and in the latest one it’s smashed the competition again with 94% rating it great. It also gives £125 to switch, a £250 0% overdraft and offers a linked 6% regular savings account. You need to pay in a minimum of £1,000/month to get it (equivalent to paying in a £13,600 pre-tax salary).
Three per cent savings, cashback and good service. Santander 123 has a £2 per month fee, but the perks easily dwarf that. It pays 3% AER interest on £3k-£20k balances; plus cashback on your direct debts of 1% on water, council tax and Santander mortgages, 2% on gas and electricity, and 3% on phones, internet and TV. You need to pay in a minimum £500/month to get it.
Free £100 and £5/month if in credit. Those switching to Halifax’s Reward get £100 and are paid £5 each month they're in credit. It's also got a 6-month 0% overdraft, but charges after are huge, so ALWAYS pay it off before or don't get this. You need to pay in a minimum of £750 a month to get it, though customer service feedback isn’t great. Don’t touch it if you’re overdrawn as it’ll cost you up to £3 a day depending on how much you go into your arranged overdraft by, and £5 a day for dipping into an unarranged overdraft.
Interest-free overdraft. Nationwide’s FlexDirect account gives an interest-free overdraft for the first year, though it’s 50p a day for arranged overdrafts after that. So it’s worth switching to, but ensure you use that year to budget and plan to get yourself back in credit, and of course, never go over the limit.
Is it worth paying for a bank account?
Many accounts charge a fee – they’re known as packaged accounts - though I call them Marmite accounts, as I hate them and love them.
- Hate ‘em: The big danger signal is if you are one of the millions who got one of these accounts because the bank called you, or it invited you in to say "you're a special customer" then upsold it to you, or it told you "you have to get it...".
If so, then at best you’re probably paying over the odds. Multiply the monthly cost (say £15) by 12 (so it’s £180), then work out if you could buy the perks offered that you actually need (eg, travel insurance) elsewhere for less. If so, ditch the account for a fee-free one.
At worst, you were mis-sold the account and are due cash back. Like all insurance products (which is what packaged bank accounts really are), the bank needs to ensure it's suitable for you. It's starting to look like banks systemically failed to do that. If you believe you were mis-sold to - for example the bank said you had to get the account, or you were too old for the travel insurance that came with the account and therefore weren’t covered - you may be able to reclaim packaged account fees for all the years you paid them.
- Love ‘em: While the actual banking benefits are small (in-credit rates aren't much better, though overdrafts can be bigger), these are actually disguised insurance bundles. Provided you actively choose the best policy, and you genuinely need cover, packaged accounts can be huge MoneySavers. See the Money Advice Service for packaged account info.
First things first, if the only thing you need is travel insurance, Nationwide’s FlexAccount includes European travel insurance up to age 75 (max 73 to apply), which can be £100s for older travellers, and joint accounts cover both holders. You need to pay in a minimum £750 a month to get it.
However, for £10/month - £120 a year – with its FlexPlus account you get worldwide family travel insurance up to age 75, mobile phone insurance - including for the iPhone 5 - for the whole family (that alone could be £60 per person), European breakdown cover, and a free extra year's extended warranty on electricals. Buying all of these individually could cost around £600/year, so PROVIDED you use 'em, £120/year's a corker. It also pays 3% interest (on the first £2,500), but avoid its overdraft.
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