Why are Brits so hesitant at switching banks?

They say that Brits are more likely to get divorced than split with their bank. However, why is there little switching? There is even a current account switching service ensuring that direct debits and salary payments are smoothly changed to a new bank.

The numbers say it all. The UK’s Competition and Markets Authority’s (CMA) banking industry investigation discovered that only 3% of current account customers had moved their bank account.

More than half of those customers had been with their bank for more than ten years and had never changed. This loyalty is the type that retail, in particular, would beg to have.

So why don’t they switch then?

Brits don’t trust banks

A recent poll by Positive Money found that two-thirds of British adults do not trust banks, with 72% believing banks should have faced harsher penalties for their roles int he 2008 financial crash, leading to austerity measures and the subsequent credit crunch.

Despite years of regulation and banks promising to change and paying fines and compensation for their role in the financial fiasco, the public at large still do not trust them.

The bank’s behaviour and even more recently, financial lenders like Wonga are still considered irresponsible, unfair and inattentive. Banks and lenders still appear not to have changed their lending habits, nor seem to place customers at the core ethos of their banking and lending services.

Compounded by media speculation on bankers paying themselves bonuses and government bailouts of banks – it is easy to see why this attitude prevails.

So why don’t they switch current accounts then?

A new platform has been introduced to make it easier for customers to switch their current accounts and keep the competition fierce.

This seven-day switching service promises to automatically transfer customers direct debits, salaries and overdrafts (subject to credit checks) was launched as long ago as 2013. For example, if people switched their overdrafts, they could save at least £70 a year, especially with overdrafts charging the same now as high-interest loan companies.

Sadly an opinion I have heard all too frequently is that banks and financial lenders “are all the same” – in other words, it doesn’t matter which financial institution it is, no one bank is really is better than the other.  So why change? Is it really worth all that admin time to switch a UK current account?

It’s evident then that the British public feels that no matter where their money is, or whom they borrow credit from – the service and level of expectation remains the same. There is little incentive to change.

Are UK bank accounts really that bad?

So, do other countries do banking better than the UK?

Free banking in the UK is typically prevalent if your current account is in credit – known as the “free-if-in-credit” model.

However, unlike the UK’s” free-if-in-credit” model, on the continent, you will pay to use a bank, whether you are in credit or overdrawn.

Take France for example – For Credit Agricole, their customers must pay a monthly fee to merely have a current account (around £50 a year); they will pay a small fee to hold a debit or credit card, and pay an ATM fee if they use another bank’s ATMs.

However, it should be noted that current account switching is much higher in France and Europe in general – if customers pay for current accounts, they are more likely to take their money where they feel respected and obtain better current account benefits.

Across the Atlantic in the USA, it is even worse.

Banking may sound pricey in Europe; it is even more expensive in the USA.

Most banks charge around £10 a month unless customers have serious cash sitting in the account.

Bank of America customers will face a £100 a year fee for holding a current account IF they have a positive balance equivalent of £1,028 and pay in at least $200 a month.

The US banking industry is amazed by the UK’s “free-if-in-credit” model.

So do the UK banks offer the best value to their customers?

According to research by Oxera in 2006 – in five categories – students, young professionals, low-income families, median-income families and pensioners – the UK was in the top three positions for current accounts as far as the banks were concerned.

However, students and low-income families, for example, are usually the poorest households who require additional borrowing facilities offered by banks and are the ones who will pay more in fees and interest.

The UK model then is only a good deal in comparison to other countries if customers remain in credit, and only bank using free transactions. For those more vulnerable, it is costly whoever you do your banking with.

Maybe it is this thought, and general inertia that means that less than 5% of the 70 million UK current account holders actually switch bank.

David Bailey-Lauring is a single father of three boys so he knows what it takes to stretch a budget when it comes to family finance! David is a small business entrepreneur and regularly writes about entrepreneurship, tech, sport and personal finance in the UK, USA, and Europe.