As applications to ethical banking rise following a bad week for the big five banks, Channel 4 News looks at the alternatives to high street banking.
If the 2008 global banking crisis and its aftermath had not done enough to damage the reputation of Britain's five main banks, the series of epic failures last week has probably secured banking's position as the most frowned upon industry in Britain.
The most recent casualty is Barclays' Bob Diamond, who announced his resignation on Tuesday morning. But that might not be enough for customers, who have been voicing their rage by looking for alternative banking options.
The Co-operative bank - the UK's largest bank with a comprehensive ethical plan - saw a 25 per cent increase in online applications in one week alone. Nationwide building society has also reported a significant increase in visits to its website, as has one credit union - London Mutual – which has had 20 per cent more hits.
After the Libor-fixing charges, people don't know if they've paid the right amount for mortgages, pensions, student loan. There has been a tangible change in that people are relating the personal to the macro-level economy. Louis Brooke, Move Your Money
The campaign group Move Your Money, which has also seen a 15-fold increase in online hits last week, says there has been a marked change in the reasons people are switching. The computer glitch at the RBS Group preventing customers accessing money was one thing, as was acknowledgement of misselling to small businesses. But the revelation that Barclays had attempted to fix the inter-bank lending rate, which could have impacted mortgages, pensions, student loans and savings, has caused the most outrage, says spokesman Louis Brooke.
"Before people were citing ethical consumerism, environment or social practice," he told Channel 4 News. "Now it's a more mainstream appeal. After the Libor-fixing charges [aimed at Barclays], people don't know if they've paid the right amount for mortgages, pensions, student loan. There has been a tangible change in that people are relating the personal to the macro-level economy."
Read more: Lloyds tops list as bank complaints rise
What are the alternatives?
Even if customers want to change, such is the dominance of the main high street banks that alternatives can be hard to find. Barclays, HSBC, Lloyds and RBS currently own 85 per cent of all bank branches, and around 90 per cent of all accounts.
In fact UK consumers are more likely to get divorced that move to another bank - a fitting tribute to the strong pull of 21st century British apathy. But whether you are a saver or a spender, with a mortgage or a sky-high student loan, most ethical lenders can now offer a range of comparable products.
Every lender and company has its own particular ethos and priority - be it investments in sustatinable products, or local businesses - and research into your chosen lender is unavoidable for the discerning consumer. Which? has a handy guide to help choose which type of lender and account will suit you best, whether high street or local. The Ethical Consumer also has a comprehensive guide to the current accounts available from all UK banks, building societies and credit unions, all of which are scored according to various policies, from environmental to political so you can choose which is more important.
Credit unions are a tried and tested alternative to mainstream banks, and the Find Your Credit Union website will help you hunt down your local branch. For savings, Move Your Money has put together what it says is the first list of socially responsible cash ISAs, which allows users to rank ISAs by interest rates, provider type and minimum deposit.
Why I have swapped to an ethical bank:
Dolly: "I am utterly disgusted and livid at how they have behaved...Moving to a more ethical bank (although I am aware that the Co-op is not lily white) is the only thing I feel able to do as well as continue to lobby for the banks to be regulated."
Cyril: "I dislike the lack of transparency from the major backs in admitting failures or demonstrating a commitment to fairer banking for homeowners. I believe mutual organisations could be a better basis for stability."
Competitive rates vs ethical principles?
A warm, fuzzy, feel-good glow will not be enough to drive most people to swap lenders - and is probably ill-advised by finance experts. But ethical banks do offer competitive rates for most day-to-day services. The banks which score highest on the ethical score board - First Direct, Smile, The One Account, Co-operative Bank and Nationwide - are also highly rated in the list of recommended providers compiled by Which?. Research from the consumer watchdog also found that building societies and credit unions are generally more customer focused compared to banks and have a better customer satisfaction rating.
Because building societies, such as Nationwide, are owned by shareholders. they usually run on lower costs, so can often offer cheaper mortgages and better interest rates. Regulations stipulate that at least 75 per cent of a building society's assets must be held in residential property mortgages meaning there is also less risk involved.
The big banks are exposed to Greek and other European debt. The more ethical banks and building societies which have to keep back a big percentage of capital – that's now seen as the safe option. Tim Hunt, Ethical Consumer
As well as being owned by customers and investing in local communities, credit unions also offer very competitive rates, and those on a lower income are usually offered better loans and rates at credit unions than high street banks. In fact, a feasibility study by the DWP published last month found that credit unions offer the most competitive interest rates on personal loans of up to about £2,000 in the UK market.
However it also warned that the low rates of interest were unsustainable if the sector is to remain financially viable. But the sector hopes that legislation brought in this January, which has allowed credit unions to exand the services they offer, may lead to an expansion.
But the main advantage ethical lenders have over high street banks is the "safety first principle", says Tim Hunt, researcher at Ethical Consumer magazine: "The big banks are exposed to Greek and other European debt. The more ethical banks and building societies which have to keep back a big percentage of capital - that's now seen as the safe option."
The myths of bank swapping busted
The perceived hassle involved in deviating from the familiar is one of the main reasons for consumers' reluctance to change. But financial advisers and consumer champions advise regularly shopping around for the most competitve rates anyway, even if your motivation is not ethically driven. Here Channel 4 News explores the truth behind the myths of bank swapping.
1) You can’t change banks if you’re overdrawn
In fact the opposite is more likely. Banks benefit from overdrawn customers, as they can charge you interest, so they will welcome you and your overdrawn account with open arms.
In the digital age, changing banks is not nearly as difficult as it once was and customers are entitled to complain if they incur problems. In a Which? survey, 74 per cent of people who had switched accounts said the process was easy, with 32 per cent claiming a "very easy" experience.
3) It will take too long
Under EU common principles, your new account should be up and running within 10 working days from when your application is approved. It can take slightly longer, but until the final switch is made, you should be able to use your old account.
4) Standing orders and direct debit payments won’t be made
This is what puts most people off from moving their money, but after you fill in one form, your new bank sorts out the rest. It will request details of your old account, send you a list of your current direct debits and standing orders, and you simply tell them which ones you’d like to transfer. Just make sure your switch date is straight after the date your largest payment/s leave your account, and keep an eye on your balance.
5) Moving will cost money because of charges
If you incur charges because of a payment delay or mistake, the bank responsible - whether new or old - should cancel it immediately and you’re within your rights to contact the Financial Ombudsman if not. Which? advises keeping some money in both accounts during the switchover process to make sure you can always access money should something go wrong.
25 June 2012
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