If there was ever a time to consider switching your current account, it is now. Banks and building societies are frantically redesigning their accounts before the Office of Fair Trading (OFT) announces its verdict on the fairness of bank charges.

Some banks are introducing new structures to replace existing overdraft charges; others are offering enticing rates to lure new customers before the OFT’s decision. Alliance & Leicester, First Direct and Lloyds TSB are the first to set out their stalls with new features, but others are expected to follow soon.

Alliance & Leicester has removed interest charges on its overdrafts and introduced a flat fee of 50p a day for authorised overdrafts, capped at a maximum of £5 a month. First Direct has effectively scrapped interest on in-credit balances because, it says, the feature is “not important to customers”. Lloyds TSB, meanwhile, increased the rate on its Classic Plus account to 6.4 per cent for customers who signed up before Tuesday. However, new customers will now receive only 4.17 per cent.

Whatever action the banks take, most experts agree that the shake-up will end free banking. The changes, as well as recent measures that make it easier to switch accounts, could also end the apathy of current account customers. And there are more accounts than ever to choose from.

How to switch

Which?, the consumer group, says that seven out of ten members found the process easy. First, contact your new bank before you close your present account. The new bank will send you a mandate form to allow it to contact your old bank, which will then transfer your existing standing orders and direct debits. The old bank must provide the new one with all details within three days and the new bank must provide you with details of your new account within ten days.

If you are worried about going overdrawn during the transfer, try to agree a higher overdraft limit on your new account for the first couple of weeks, then reduce it after the transfer is complete. If you go over your authorised limit, contact the bank. Most will refund the charges that new customers incur during the switching process.

Why switch?

Think about your banking needs. If you are more often in your overdraft than in credit, a high in-credit interest rate will make little difference. Instead, you should compare overdraft rates and associated fees. If your workplace is not near a branch, look at banks that specialise in online or telephone services.

Simon Kent, of Troika, the retail banking consultancy, says: “It is no good switching for the sake of it. Ask yourself why and consider the way you usually bank.”

If you are not happy with your bank’s terms and conditions but do not want to switch, try bargaining. Banks will often negotiate better deals for customers they do not want to lose.

Mr Kent says: “It is always worth contacting your existing bank first. If you threaten to leave, you could be offered an account free, or be given a premium service for the price of a basic one.”

Who offers what?

While some banks offer incentives if you recommend a friend – Lloyds TSB is offering £30 each for up to ten friends – Mr Kent says that this is a bad reason for choosing a current account. “The incentives may look appealing, but in the long term it is the account that matters.”

In-credit customers are in luck, with five banks now offering more than 6 per cent interest. Abbey pays switchers 8 per cent for their first year; while Alliance & Leicester offers 6.5 per cent, falling to one percentage point below the Bank of England base rate after October next year. Coventry Building Society pays 6.35 per cent, including a one-year bonus of 0.85 percentage points, but the overdraft is limited to £250. Halifax and Bank of Scotland both offer 6.14 per cent. Most require a monthly deposit of £1,000. NatWest, Royal Bank of Scotland and Barclays all pay only 0.1 per cent gross interest.

What are the catches?

The benefits of most accounts will be cancelled if you exceed your authorised overdraft limit.

Alliance & Leicester’s unauthorised overdraft charge is £25 on the first day and £25 on the fifth day, with a maximum charge of £50 a month. Failed transaction and paid-item fees are now £25.

From November 2 Lloyds TSB customers will pay £15 for going over their overdraft limit, with daily fees of between £6 and £20. Returned items will cost you £20. Moneyexpert.com, the price comparison website, says that the average APR on unauthorised overdrafts is 25.57 per cent.

Is premier banking worth paying for?

Most high street banks now offer “premier” or “premium” banking, for a monthly fee of about £12.

These accounts offer a package of benefits, including travel insurance, breakdown cover, mobile phone insurance and card protection. You still pay fees and charges associated with standard current accounts, but in some cases interest rates may be more competitive.

While the benefits can offer good value, they can be useless if you are already paying for the same features with other providers. Simon Kent, of Troika, the retail banking consultancy, says: “When comparing features, ask yourself if you will make use of them.”

CASE STUDY TAKING DIRECT ACTION

AFTER 20 years with Barclays, Wendy Headley, left, decided that her loyalty was not being rewarded, so she moved her current account to First Direct, the internet bank.

It was on a recommendation from her daughter that the 52-year-old Barnado’s social worker from Leeds opted for First Direct. The process was relatively smooth. “There were a few hiccups with direct debits,” she says, “but on the whole it went well and they were really helpful.”

Mrs Headley chose the internet bank because her long working hours made it difficult for her to use branch-based services. Because she also has a savings account with the bank, Wendy does not pay the £10 monthly charge that First Direct applies to some of its current accounts.

“I do not agree with charging people for banking and was annoyed when I heard that First Direct did so,” Mrs Headley says. “However, I am pleased to say that I have managed to avoid it.”