Banks face pressure to offer current account rewards
The big four High Street banks are under pressure to offer current account perks as competition in the sector appears to be picking up.
A system aiming to speed up the process of switching account providers has been in place for 15 months in the UK.
The £8bn-a-year market has traditionally been dominated by Barclays, Lloyds Banking Group, HSBC and RBS, who control 75% of accounts.
Now some smaller providers have widened the elements of competition.
Some of the latest current account deals include interest payments of up to 5% for customers that stay in credit and cashback on utility bills and shopping.
Kevin Mountford, of Moneysupermarket.com, told Radio 5 live's consumer team: "There has always been a perception that the current account is a valuable asset because clearly then the banks have our transactional data.
"But what we have seen with the start of the [seven-day] current account switching service, is greater awareness and a political agenda to bring in more competition.
"I think the big four banks have now realised they can no longer rest on their laurels. Ultimately we as consumers are going to get more choice and that can only be a good thing."
Data from market analysts TNS Global shows that last year, twice as many customers moved their current account to Santander than to its nearest rival, Halifax.
Santander's 123 account has a £2 monthly fee and offers 3% interest on balances of up to £20,000, plus cashback on household and utility bills and home insurance premiums.
Similarly, Nationwide's Flex Direct Current Account which launched 15 months ago, offers an introductory rate of 5% on balances up to £2,500. The building society attracted 339,000 new customers in the nine months to December.
In comparison, the highest paying cash Individual Savings Account (Isa) currently on the market, Skipton Building Society's Limited Edition Cash Isa, pays 1.6% interest.
Now there are signs the big four banks are starting to bite back. Barclays, which saw its overall share of the current account market fall by 2% last year, is launching its new online "Blue Rewards" account this week.
This offers customers £180 a year and a series of cashback payments on Barclays' mortgage and home insurance, and on purchases at some High Street stores.
In return, every month customers must pay a £3 flat fee and deposit a minimum of £800. They must also have at least two direct debits linked to Blue Rewards.
Analysts say this change of direction by Barclays is a sign of the ferocious competition now underway.
An investigation last year by the watchdog, the Competition and Markets Authority, found overall levels of current account switching remained low. Consumer groups blame apathy and lack of transparency over charges.
Marks and Spencer is one of the newer entrants to High Street banking. It has also launched a paid-for current account offering loyalty points on in-store shopping and £100 "welcome" voucher for new customers.
Paul Stokes, head of products at M&S Bank, dismissed claims that these deals were being run at a loss by providers, to help them sell more lucrative banking products such as credit cards and loans.
"I don't think loss leaders or cross subsidising products is helpful for the longer term for the industry," he said. "It is important to us that [the account] makes a contribution, and it does do that."