Bank current accounts challenge

The monopoly of banks and building societies on current accounts has been broken.

Credit unions have started offering fully functioning current accounts to their members after one successful pilot attracted 1000 customers.

Eventually all 400 credit unions could provide a full current account service to 400,000 members.

The new accounts do not offer chequebooks but come with a Visa debit card and a borrowing facility.

Speaking on BBC Radio 4's Money Box programme Sue Davenport, chief executive of Leeds City Credit Union explained why: "We saw that as old technology. So we've gone for a Visa debit card with chip and pin instead."

The Visa debit card is fully functioning without the restrictions on some cards like Electron and can also be used to take out cash via the Link network worldwide.

That sets it apart from the basic current accounts which the high street banks offer.

Although the accounts provide for direct debits and standing orders they do not come with an overdraft.

Sue Davenport said that need not be a problem even if a payment takes the account into negative territory.

"It does have a line of credit for the individual with the credit union should they require it," she told the programme. "And the person could also arrange to use their savings to offset that."

"If they have savings in the credit union it's a simple matter to transfer those funds into the current account to ensure the payment is made."

Unfair' charges

If all that fails there is a charge for bouncing a payment.

But at around £15 it is half the charge of most high street banks. Ms Davenport said she hoped bouncing payments would be a last resort.

"We hope we won't bounce very many payments at all because of having the cushion of either the line of credit or the savings," she said.

"But where we have to it will be a fairly minimal charge set by the individual credit union.

"We've taken note of the fact that those charges from the banks are very high and we think somewhat unfair so we are going to make sure our charges are very low."

The accounts do not pay interest and some make a monthly charge - though normally less than £1.

At the moment the account is offered in nine areas of the country but other credit unions are expected to join over the next few months.