The mutual bank says its scheme is designed to help customers get their finances in order, not to boost borrowing
Customers with a current account at the Co-operative Bank will have interest on agreed overdrafts frozen for three months in a move the bank says will provide a helping hand to those struggling with post-Christmas debts.
The Co-op, which has 1.5 million current account customers, said someone using a �2,000 agreed overdraft would save �75 in fees in the three-month offer period, while a customer with a debt of �500 could save more than �18.
Banks have come under fire from consumer groups for failing to provide extra support to customers hit by the recession. The Bank of England's low interest rates rather than individual lenders have provided mortgage holders with a financial breathing space while they pay down credit cards and other debts.
With the prospect of a sharp rise in unemployment this year, many more households will be plunged into financial difficulties and other high street banks will come under pressure to follow the Co-op's lead.
The Co-op's head of banking, Robin Taylor, said: "In these difficult economic times, we want to offer a helping hand to those customers, who may be struggling financially, and give some additional support to those whose finances may be stretched after the festive period."
He said the offer, available to customers who increased their overdrafts within the agreed limits, was not designed to encourage new borrowing but to help those with debts to get their finances back in order.
"Many people review their finances at the start of the year. As a responsible lender, we want to encourage customers to take control of their finances by providing them with the additional leeway to begin tackling any debts," he said.
The scheme excludes the bank's student accounts and is only available to borrowers with a formal overdraft in place. Those who have gone overdrawn without permission can request a formal overdraft, which costs �20 to set up, but will pay an interest rate of 15.9% and charges of up to �150 a quarter if they are refused.
Co-operative Bank is the preferred bidder for the 632 branches that Lloyds Banking Group is being forced to sell after its purchase of HBOS. The bank said the offer, which lasts until 4 April, was part of its attempts to provide consumers "with a genuine alternative to the big five banks".
One of those big five, Halifax, has also stepped up its campaign to win customers by offering �100 to anyone who switches to one of its current accounts.
The cashback offer is not a new thing but Halifax is the first to offer the money on the day the switching process begins ? usually customers must wait some weeks for the cash to be credited to their accounts.
The battle for current account customers has been heating up as banks clamour to persuade consumers to switch. Santander and First Direct are offering customers up to �100 to move, while HSBC is offering 6% interest on balances up to �2,500 and a 0% overdraft rate, both for 12 months.
Kevin Mountford, head of banking at the price comparison website Moneysupermarket, said banks were looking for ways to increase their profits and getting new customers through the door was part of that.
"The current account was always meant to be a platform for cross-selling and up-selling because it gives the bank so much transactional information about a customer," he said.
Mountford said customers were still reluctant to switch though, fearing that things might go wrong.
"I think there is a desire [among banks] to try and wake up that very inert base."
Meanwhile, Virgin Money has denied reports that it is planning a monthly fee for all customers when it enters the current account market in 2013, but says some consumers will have to pay.
The bank, which completed its purchase of Northern Rock on 31 December 2011, is developing current accounts to offer through the 75 high street branches it now owns around the UK.
The Daily Mail said the bank had decided to charge about �5 a month for current accounts, with customers who are not overdrawn paying alongside those who are borrowing from the bank.
A spokesman for Virgin Money said the report was "too simplistic", and that while there "probably will be a monthly charge" on some accounts, not everyone would face a fee.
Source: http://www.guardian.co.uk/business/2012/jan/03/cooperative-bank-freezes-overdraft-fees
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