Don Cruickshank's review of banking calls for changes to give customers a better deal. 

EVERYONE pays up to £400 a year over the odds for banking services, according to a damning government report. 

Charges and interest rates on overdrafts, credit cards, mortgages and personal loans are exorbitantly high, while returns from savings accounts are unacceptably low. 

Banks have made "excessive profits" - £3 billion to £5 billion a year above normal levels - over the past few years. The government's cosy relationship with high-street banks has allowed such profiteering to continue unchecked. 

The banking review published last week called for changes that would force banks to become more competitive and make it easier for customers to switch banks if they are getting a raw deal. 

Don Cruickshank, the head of the review, criticised the Financial Services Authority (FSA), the City regulator, for failing adequately to protect consumers. 

He also urged the government to consider the independence of the FSA, which is staffed by people previously employed by insurers, banks and other firms under its supervision. 

In the budget, Gordon Brown announced legislation to regulate banking, including cashpoints, cheque clearing and money transmission systems between accounts at different banks. 

Banks have a tight grip on these systems, so new cut-price competitors find it difficult to enter the market. For example, under plans due to be introduced next year, customers who withdraw money from a cash machine that does not belong to their own bank will have to pay a £1 fee. 

Therefore, new banks or building societies without extensive cashpoint networks will effectively be unable to offer competitive current accounts, because their customers will incur hefty cashpoint fees. Such anti-competitive activity is expected to be outlawed. 

The banking review recommends changes to the following banking products and services: 

Current accounts 

The review found that current accounts were the least competitive products. They pay paltry rates of interest when customers are in credit, but charge exorbitant rates when you go overdrawn. People rarely switch banks because they are put off by the apparent administrative hassle, which is often made more difficult than necessary by the banks. 

New regulations should speed up the time it takes to clear a cheque - now anything up to five working days. Cruickshank wants a kite-mark scheme for current accounts. Accounts without onerous small-print clauses and hefty fees - but with more generous rates of interest when in credit - would qualify. The FSA should also publish comparative tables of current accounts. 

The legislation announced in the budget should set out a standard, easy way for people to switch current accounts. 

Mortgages 

Redemption penalties should be clearly expressed in pounds and pence to borrowers when they take out a mortgage. Endowment mortgages were also singled out for criticism. Cruickshank says: "Endowment mortgages are wrong for 90% of people, 90% of the time." 

Savings accounts 

The review discovered that almost 80% of people surveyed did not know the interest rate on their savings account. Banks prey on their ignorance by paying abysmal rates - often below inflation. Again, the review recommended benchmarking good products to reassure consumers that they will always receive a competitive return. 

Credit cards 

Credit cards are among the most profitable products offered by banks - and the worst cards are the most popular. The review called for the government to insist that consumers are given  more information about credit-card rates. 

Personal loans 

The review found that personal loans offered by the big banks were "far from the most competitive". However, it believes that benchmarking and comparative tables should help consumers find the best deals on personal loans available. 

Sunday Times  26 March 2000