Nearly all of us have a current account, but we tend to be stick-in-the-muds.
Despite increasing competition over the past ten years, the majority of the
population still banks with the Big Four high street banks: Barclays, HSBC,
Lloyds TSB and RBS NatWest.
If recent results are anything to go by, this quartet is making bumper profits
at our expense. Yet a recent survey found that nearly two thirds of their
customers do not feel they are receiving a good deal. With spring fast
approaching, now may be a good time to spruce up your finances, starting
with where you bank. Check out the competition.
1. Your existing current account may be “obsolete”
Banks have taken to introducing improved current accounts to attract new
customers, leaving those in older accounts on less attractive terms.
Alliance & Leicester, for example, introduced its Premier current account,
paying a competitive rate, a couple of years ago. However, existing current
account customers who received no interest had to apply to be transferred to
the new account.
At other banks, it can be even more confusing. A recent survey showed that the
Big Four have 39 current accounts between them.
2. You could earn interest of up to 6 per cent on your current account
If you usually keep a healthy balance in your account, it is worth considering
one that pays a decent rate of interest on credit balances. But when you do
see a good rate, check the terms and conditions. Halifax will pay only pay 6
per cent interest on balances of up to £2,500. Some banks only offer
current accounts with attractive rates of interest to those who pay in at
least £1,000 a month.
But don’t get too excited about credit interest. A survey by Datamonitor found
that, on average, even customers who pay £1,000 or more into their account
each month will only earn about an extra £30 a year in interest if they
switch from the lowest to the highest-paying account. Spare cash is usually
better off in a savings account.
3. Most people pay over the odds for their overdraft.
Some banks charge more than 30 per cent interest if you overdraw without
permission. You will also have to pay charges. Some banks offer fee-free or
interest-free overdraft buffers. Cahoot has a £250 free overdraft buffer.
One of the cheapest for unauthorised overdrafts is Alliance & Leicester’s
Premier current account, which charges 7.9 per cent.
If you regularly slip into the red, it is best to arrange an authorised
overdraft facility. Nationwide has one of the cheapest authorised overdraft
rates of 6.75 per cent.
4. Direct debits can save you money, but you need to keep an eye on them
A growing number of organisations are encouraging us to pay by direct debit
and are offering discounts if we do. But they can also become costly. Many
of us waste money by forgetting to cancel direct debits for things that we
no longer use. If a direct debit is infrequent, it might also catch you with
insufficient funds in your account, so you could end up with an unexpected
overdraft. If you have lost track of your direct debits and standing orders,
ask your bank for a list.
5. You don’t have to give up on the high street to find a better deal
Although current accounts offered by internet and telephone banks are often
among the most competitive, if you prefer a bank with a branch network, the
Alliance & Leicester, Halifax and Nationwide also offer good deals.
6. Packaged current accounts are not all they are cracked up to be
Several of the big banks offer packaged accounts, which cost customers up to
£150 a year. The carrot is that they come with a range of perks that banks
claim can save customers hundreds of pounds.
These perks include preferential rates on savings and loans, holiday
discounts, commission-free currency and free travel insurance and car
breakdown cover. But when Which?, the Consumers’ Association magazine,
examined the benefits, it concluded that some elements of the deals could be
found elsewhere at no extra cost and that unless you took advantage of the
more valuable benefits, such as travel or breakdown cover, you were unlikely
to get value for money.
7. Do not assume that because your bank is good at one thing it will be
good at another
Just because you have your current account with a bank, it does not mean that
it is the best place to buy other financial products. If you are looking for
savings accounts such as cash Isas, you are likely to find better rates at
Intelligent Finance, Safeway or Marks & Spencer. For cheap personal loans,
try Nationwide, Tesco or Sainsbury’s.
8. Current account mortgages may not save you money
These are becoming increasingly popular. With these arrangements, your
mortgage becomes a sort of giant overdraft — each time your salary is paid
into the account, it helps to reduce your outstanding balance. This can
reduce the amount of interest you pay and help to clear your loan more
quickly.
To obtain the maximum benefit, keep your salary in your account for as long as
possible by moving all your direct debits and standing orders to the end of
the month. But bear in mind that current account mortgages are usually on
higher interest rates than ordinary mortgage deals.
9. Switching current accounts is now easier
Changes to the Banking Code a couple of years ago mean that you now have to
fill in only one form with your current bank, which should pass on details
of your standing orders and direct debits to your new bank within three
working days.
If something goes wrong with the procedure and you incur extra charges, the
Banking Code requires your old bank to cover the costs if it were to blame
for the mistake or delay.
10. Complaining really can make a difference
If you do have problems with your bank, don’t just grin and bear it —
complain. State your problem in writing and say what you want the bank to do
to put it right, be it an apology or compensation.
If you are unhappy with the bank’s response and have exhausted its formal
complaints procedure, take the matter to the Financial Ombudsman Service.
Call on 0845 0801800 and ask for its guide to making a complaint.
Alternatively, visit www.financial-ombudsman.org.uk.
