The banks' big charge

The Consumers' Association warned this week that the average family risks spending more than £1,000 a year unnecessarily by buying loans, credit cards, mortgages and insurances from their high street bank or building society. That alert may have come just in time to prevent more financial product shoppers from losing out.

For banks plan to increase their current £90m annual spend on junk mailshots exhorting customers to buy their often overpriced wares while presenting only favourable cost comparisons of their own products.

New figures from market analysts Datamonitor show a growing number of people prefer the ease of one-stop shopping to looking around. But banking experts believe few customers realise just how much they could lose by accepting whatever products the staff at the local bank branch decide is "best advice" - invariably in-house products, no matter how pricey.

According to the CA, a family that bought a fixed rate mortgage, basic life insurance, a personal loan, a credit card and insurance for their home from Barclays Bank would spend an unnecessary £1,137 compared with best buys from elsewhere. Which? magazine, labels Barclays' personal loans as "nothing short of a rip-off" while overall it says "Barclays takes the wooden spoon for the consistent mediocrity of its products". It adds that the seven other high street majors are not much better.

Which? editor Helen Parker says: "Our research shows most big banks offer appalling value for money. It's a misguided loyalty that can cost you dear. In almost all cases you'll get a better deal by shopping around."

Which? quotes the cost borrowing £5,000 over three years as £7,446 from Barclays but £6,662 from Nationwide. NatWest is shown as the most expensive credit card, although it abolished annual charges and shaved its interest rate on the day the Which? report was released.

Datamonitor research shows that around 15% of bank customers treat their bank as a financial supermarket. But over the next three years, that figure is set to rise to 18% as the drive to sell further products to existing clients gathers pace.

Bank marketing executives believe there is a soft core of millions more potential customers who could be attracted if they were nudged. Datamonitor statistics show that currently only 3% do almost all of their financial shopping at their bank. However, a further 25% would opt for one-stop shopping.

"The banks make little or sometimes nothing from current accounts," says Alan Leach at Datamonitor. "They need to cross-sell other products such as credit cards and personal loans to boost their earnings.

"And this trend is upwards. The banks and the former building societies have a profits imperative to keep the City happy."

Leach's Datamonitor research shows that the Yorkshire Bank and the Co-op are the most successful at cross-selling. They win because they have a selected audience which trusts them.

Moneyfacts, which publishes data on financial products, shows that these two banks tend to be average value. Scottish banks bombard customers the least.

The banks have improved what they call "customer relationship management" so they can focus their marketing efforts on the most likely prospects.

Most of this selling onslaught is based on details contained in your current account. But your local bank manager is not supposed to look through your cheques to see if you are paying out money to rival financial services companies.

The Data Registrar recently rapped one bank's knuckles for marketing mortgages to customers whose accounts showed large home loan repayments.

Credit card companies which look at individual purchases such as wine then target customers with a linked off-licence also risk running foul of data protection legislation.

These are not illegal practices, however, providing the bank or credit card company has made it clear it will analyse purchases.

But managers can and do decide that a customer with a large overdraft should be approached by the bank's loan division, while one with big savings could be a target for an asset management arm.

Under rules which came in force in May customers can ban banks from calling them by applying to the telephone preference service.

This overrides any previous permission they may have given the bank to contact them with additional marketing from the bank or associated companies.

Customers can also ban personalised junk mail, though not general mailings such as consumer magazines, via the mailing preference service.

The banks cheerfully admit that they are not in the business of being best buys. But they say customers are happy to pay more for the convenience of one-stop shopping and the confidence of a big brand name.