While the launch of the Fairbanking Foundation’s rating system for retail banking products earlier this week generated some good articles in the Financial Times and the Telegraph it seems likely that the launch will have passed most UK consumers by.
This is a shame as, while a plethora of price comparison websites exist, there are precious few resources available to UK consumers to help them to evaluate the quality of retail banking products and the impact that they may have on their ‘financial wellbeing’ – a key tenet of the new Fairbanking awards.
This difference between price and value is important and was highlighted by some research undertaken by Social Finance for HM Treasury earlier this year.
We found that nearly 9 million UK consumers are not currently benefiting from the ‘free’ bank accounts currently offered by our high street banks. These consumers either choose to manage in cash to avoid high fees for missed bill payments or overdrafts, or are incurring such penalty fees to the tune of of over £100 each year.
While no single banking product will meet the needs of everyone who is not currently benefiting from banking, we concluded that a significant proportion would benefit from ‘Jam Jar Accounts’ that:
- Allow customers to split their account balance into ‘Jam Jars’ for spending, saving and bill payment;
- Support customers to improve their budgeting and bill payment behaviour through low balance alerts and automated transfers of funds between Jam Jars; and
- Give customers access to trained ‘Money Managers’ that can provide budgeting advice and referrals on to specialist support services (e.g. debt advice or Citizens Advice Bureaux) where necessary.
It was therefore very pleasing to see the first Fairbanking Marks for personal current accounts awarded to the UK’s two largest providers of ‘Jam Jar Accounts’, Think Banking and Secure Trust Bank These providers charge their account holders a flat monthly fee, but remove the risk of penalty fees and actively support their customers to stay on top of their finances.
We estimate that only 150,000 UK consumers are currently taking advantage of this kind of account, but that many, many more could benefit from the kind of support that they provide. Contributions from social landlords, utility companies and others that would benefit from improvements in bill payment behaviour could play an important role in ensuring that such accounts are accessible to those on low incomes. As the value of Jam Jar accounts to financial wellbeing has now been independently recognised, we are hopeful that Government may support this to happen.
Louise Savell, Associate Director at Social Finance