Mobile banking apps and text alerts are the best way to help customers better manage their finances, the Financial Conduct Authority has told British banks.
A report by the British watchdog found that customers feel more comfortable moving money into their savings accounts when confident they will be informed if they are close to their overdraft. While annual summaries often fail to prompt customers to consider the benefits of a higher interest account, the FCA found that text reminders are a more effective way of changing behaviour.
“Consumers may intentionally keep high balances to protect themselves from incurring overdraft charges, especially if they find the cost of paying attention to their account to be high,” the report said.
“These services reduce the time and effort needed to monitor balances, so consumers can keep a lower buffer in their account while continuing to avoid overdraft charges and earn interest on excess balances in accounts with higher credit interest rates.”
Overdraft charges fell 24 per cent for customers receiving mobile reminders, while for customers of one of the banks studied reduced their current account balances by an average of £307.
The FCA report found that middle-aged customers with higher incomes pay the most in overdraft charges, and are least likely to switch accounts.
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