Traffic light labelling scheme urged to compare current accounts
A traffic light labelling scheme should be introduced for current accounts to make it easier for customers to compare deals at a glance, in a similar way to supermarket food labelling , according to Tesco Bank.
The bank has written to the competition watchdog, which is probing the industry, to put forward the proposal, which it said would enable consumers to see the value of their own account, as well as that of other accounts on the market.
Tesco asked Andrew Hagger, a personal finance researcher from website Moneycomms.co.uk, to explore what the labelling system might look like.
As with traffic light labelling on food, accounts could be given red, amber and green ratings, depending on how good they might be for a consumer's financial health, helping current account providers' credit interest and overdraft charges to be compared more easily.
Different scenarios could be used, enabling someone to work out how the ratings might apply to them. For example, an account could have a particular rating based on someone having an average balance of £1,000 or being overdrawn by £250 for three days per month.
The labelling could be available online as well as in leaflets, Mr Hagger suggested.
Mr Hagger's research found huge variations in the amounts people could be charged in different scenarios. For example, while some current account customers pay more than £6 for going overdrawn by £250 for three days a month, others pay nothing, depending on who they bank with.
Mr Hagger said: "Comparing bank accounts is too complex and a key reason why people don't feel comfortable to switch provider.
"Traffic light indicators or colour-coded labelling offers something that's not currently available - a straightforward, at-a-glance view, enabling people to quickly identify the accounts likely to be most suited to their day-to-day banking needs."
A seven-day switching service was introduced in 2013 across the industry to make the process of moving current account easier, but research has found that many people still struggle to work out which account would be best for their needs.
Recent research by the Competition and Markets Authority (CMA), which is investigating the banking market, found 37% of people had been with their main provider for more than 20 years - and a further 20% had been with their provider for between 10 and 20 years.
The CMA highlighted a lack of comparative information on banks' service quality, such as customer service and bank errors, available to customers in the public domain.
Benny Higgins, chief executive of Tesco Bank, which is a relatively new player in the current account market, said: "It is about time that the industry took concrete steps to restore faith in the sector."
The call from Tesco came as Which? said that the CMA should explore how to make more use of information about banks in order to regularly "name and shame" the worst providers.
The consumer group's own research found that just one in 10 (12%) people are able to identify the best account for an unauthorised overdraft user and four in 10 (39%) are able to spot the best account for staying in credit.
It said the CMA should also look at increasing compensation levels for customers who experience poor service.
Which? executive director Richard Lloyd said: "The CMA should propose changes that will incentivise banks to better respond to the needs of their customers."