Small banks and building societies set a new record for customer satisfaction in 2012, as the average score climbs 7% to 81 - the highest level ever reached by a financial services category in the NCSI. Smaller financial institutions have always had high customer satisfaction, but even with the entire banking industry clambering to improve, small banks and building societies are gaining at more than double the rate.

"The UK customer satisfaction results for retail banks are very similar to those in the United States - in both countries, smaller banks do better by their customers than larger banks," says Claes Fornell, founder of the ACSI and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. "The lesson for large banks is that they should lessen command and control functions in return for greater flexibility at the branch level. In other words, let the branch managers assume more authority with respect to servicing customers. They probably know their customers much better than both the head office and the regional offices."

Overall customer satisfaction is 74 (+3%) for retail banks, 74 (+4%) for mortgage lenders, 76 (+1%) for credit cards, and 76 (no change) for home & motor insurers.

Retail Banks

Among the big five banks, HSBC (including First Direct) continues to have the highest customer satisfaction at 75 (+1%), but its lead is narrowing as other banks invest in technology and attempt to compete with its best-in-class customer service.

Lloyds Banking Group (including HBOS) follows close behind at 74. After enhancing its web and mobile capabilities, Lloyds customers are now among the most likely to bank online. Barclays also posts improvements across the board and rises to an NCSI score of 73. According to customers, Barclays offers the best value among the high-street banks.

RBS is the only bank not to improve customer satisfaction this year. Customers report a decline in quality and reliability, and satisfaction with RBS stalls at a score of 72. At 70, Santander remains the lowest scoring bank, but improves slightly (+1%).

Mortgage Lenders

As mortgage rates edge downwards, customer satisfaction with mortgage lenders makes its largest gain in three years (+3%) to reach an NCSI score of 74. According to customers, service quality has improved, but the industry-wide rise in satisfaction is due in large part to lower rates. The government's Funding for Lending (FLS) scheme, launched in August, is likely to further improve customer satisfaction if banks pass on lower borrowing costs to consumers.

Among the major mortgage lenders, Nationwide leads with an NCSI score of 78, a record-high for the industry. Smaller mortgage lenders show the most improvement this year, with a 6% increase to 75. Barclays and Lloyds Banking Group both match the industry average at 74, but RBS and Santander fall well below. Santander rises to 71 (+4%), knocking RBS Group into last place (-3%) at 68.

Credit Cards

Customer satisfaction with credit cards reaches a five-year high in 2012 at an NCSI score of 76 (+1%). Borrowers took advantage of a price war in the credit card market, including lower transfer fees, interest-free terms and rewards, which resulted in higher customer satisfaction - but also lower customer loyalty.

Smaller credit card issuers maintain an NCSI score of 79, well ahead of the industry average. Among the big banks, HSBC slips (-3%) to tie RBS Group (+1%) for the lead at 74, followed by Barclays and Lloyds Banking Group, both at 73.

Home & Motor Insurance

Overall customer satisfaction with home and motor insurers remains at a score of 76 for 2012. Smaller insurers held a healthy lead last year, but their average NCSI score is now stagnant at 77. RSA Group (including More Th>n) leaps 5% to 77, taking the lead among the largest insurers.

Last year's leader Churchill Group keeps customer satisfaction steady at 76 for the third consecutive year, but a 4% improvement for Direct Line places the two in a draw for second place. Aviva and Zurich both increase 3% to tie at 75.