Don't let banks take you for a ride

The past 30 years have seen the personal finance landscape change enormously, mainly for the better as far as consumers are concerned.

Greater competition between providers and easier access to comparison tables have made is much easier to find value for money, although there is still room for improvement.

For bank customers, the key difference between today and 30 years ago is increased choice.

Then, the big four high street banks dominated. Now, with the introduction of current accounts by building societies and ex-building societies such as Nationwide, Halifax, Alliance & Leicester and Abbey, and telephone and internet banking, the field has widened massively and more than 30 current accounts are available.
One consequence of the greater competition among banks has been the introduction of current accounts paying interest on credit balances. Some now offer more than 5% for the first year, provided they are funded by between £500 and £1,000 each month.

However, although it has become easier to switch current accounts, many customers still don't bother. According to Abbey, more than half (52%) of Britons are still with the same bank they were with 10 years ago.
Yet changing banks could not be easier. Most banks hoping to attract new customers normally offer a switching service and will organise the transfer on your behalf. Under the new banking code, your existing bank is required to deal quickly and efficiently with switching requests.
But another development - packaged current accounts with fees of from £10 to £20 per month in return for various incentives such as travel insurance and breakdown cover - should be treated with caution. These accounts are being promoted heavily nowadays, but they don't always provide value for money.

General insurance

On the general insurance front, the major change that has occurred over the past 30 years is the ease with which it is now possible to shop around for the best motor and home insurance deals. Back in 1979, motor and home insurance was typically bought through high street insurance brokers and people tended to stick with the same provider.
Many homeowners were sold their household buildings and contents cover by their mortgage lenders, for whom the commission was a useful source of extra income.
It was not until Direct Line came along in 1985 and started selling motor insurance policies direct over the phone, followed by household policies in 1988, that consumers realised there were cheaper deals available.
Competition among providers has intensified since then, helping to keep premiums down. Supermarkets such as Sainsbury's and Tesco have entered the market, while internet price comparison websites have made shopping around for motor and household policies even easier.
It is now common practice for motorists to compare premiums every year when their insurance policies come up for renewal, although householders tend to do so less often.
However, there are pitfalls. Some comparison sites build in relatively high excesses for motor policy quotes in order to keep premiums low. With home insurance, the 'inner limits', such as single-item limits, can also vary considerably from one policy to the next, so it is important to check you are getting the right cover.


The mortgage wheel has virtually turned full-circle over the past 30 years. Loans were not easy to get then and the credit crunch has made them more difficult to obtain now. In 1979, it was because building societies were the main source of loans and their funds were limited.

Prospective borrowers were expected to have a savings account with a society before being granted a loan. The maximum multiple of income the societies would lend was less than three times the main earner's income and the typical loan-to-value (LTV) limit was 80%.

Although mortgages later became much easier - some would say too easy - to obtain, and included 100%-plus LTV, it has become difficult once more for many prospective buyers to arrange mortgages.

Unless you have a sizeable deposit, a good salary, a safe job and a faultless credit history you will struggle to be accepted for a loan in 2009.

We have also seen the rise and fall of the endowment mortgage. In 1979, about a third of new mortgages were endowment-based. This proportion rose to around 80% in the late 1980s. Now it is down to about 5%.

Although many existing borrowers have abandoned their endowments in the meantime and switched to repayment loans, some of the original policies are still in force and coming up to maturity, which means some homeowners may face shortfalls.
Other changes that have occurred over the past three decades include the rise of the fixed rate loan, the tracker and the offset mortgage. However, tracker mortgages have proved a loss-leader for lenders recently as interest rates have dropped.

Most loans on offer are fixed rate. Although the rates are currently relatively high, taking a fixed rate now could be beneficial when interest rates start to rise again.


Competition for savings has become particularly intense, and this has been good news for savers even though, in the current low interest rate environment, they may not feel particularly well off.



Back in 1979, building societies were the main home for the nation's savings, but there was very little difference in the interest rates they paid. Most adhered to the Building Societies Association recommended rate.

This cartel was abolished in the early 1980s. When societies started to demutualise at the end of that decade, the gloves came off.

Today, there is a plethora of savings accounts on offer from a variety of institutions, ranging from foreign banks to supermarkets. The best interest rates are usually offered on postal and internet accounts.
However, even the most astute savers have to be on their toes nowadays, as many of the best-buy accounts are offered with temporary bonuses for six to 12 months, so it may be necessary to switch out of these accounts again after the bonus period.

The introduction of tax-free savings accounts has been a great boost to savers. First came tax-exempt special savings accounts in 1990, which were replaced by individual savings accounts (ISAs) in 1999.

Cash ISAs are a no-brainer for savers. The limit on how much can be deposited in these accounts is being increased from £3,600 per tax year to £5,100 from 6 October 2009 for the over-50s and from 6 April 2010 for everyone else.

Still, research indicates that many savers lose money by not regularly checking the rates they are receiving on their savings or switching accounts. Only the most active savers get the best deals.

Credit cards

Although Barclaycard introduced the first UK credit card in 1966 and other banks followed suit in 1972, they were not commonplace 30 years ago. However, by 1999, it was estimated that half of all UK adults held at least one credit card.

Initially, people stuck to cards issued by their banks. But then other providers started making more tempting offers.
In 1996, Goldfish launched the first UK credit card loyalty scheme, which awarded points that cardholders could exchange for money-off vouchers.

A year later Alliance & Leicester introduced the cash-back card, and in 2000 Egg launched the first 0% balance transfer scheme, which allows cardholders to switch their outstanding balances and enjoy six months of interest-free credit. Chip and PIN was introduced in February 2006 to reduce identity theft.

Last year, plastic cards accounted for two thirds of all UK retail spending. More than £126 billion was spent using credit cards in 2008. The latest figures show that outstanding credit card balances top £52 billion.

However, debit cards, introduced in 1987, now account for 75% of all card payments.

Credit cards nowadays are not a particularly cheap source of credit, with APRs often running at more than 15%. But they do provide up to 59 days of free credit and 0% introductory offers, and balance transfer deals are still available. Moves by card providers to reintroduce annual fees after regulatory crackdowns may make them less attractive in future.

Life products

The area that has possibly seen most change over the past 30 years is life assurance. In 1979, life assurance policies were promoted as a tax-efficient means of saving, as the premiums qualified for tax relief, which helped boost returns.

Although life assurance premium relief was abolished for policies taken out after 1984, with-profits endowment policies linked to mortgages continued to be sold in increasing numbers thanks to the attractions of rising bonuses, and unit-linked policies were also heavily sold by companies such as Allied Dunbar.
In fact, the main reason so many life policies were sold was because of the hefty commissions paid to life assurance salespeople, often equivalent to the first year's premiums or more.

As financial regulation increased, companies and salesmen were required to be more transparent about the amounts of commission paid and its effect on returns. The poor value for money offered by unit-linked policies became increasingly obvious and at the same time with-profits bonuses started to fall. Fewer and fewer investment-style policies were sold.

Now, life insurance has gone back to its roots and focusing on protection again. Increasing competition has brought the cost of term assurance down in recent years and the popularity of critical illness insurance has grown.

However, insurers are still trying to get away with selling overpriced products today, in the form of guaranteed acceptance on over 50s life policies.

This article was originally published in Money Observer - Moneywise's sister publication - in October 2009