The Financial Services Authority (FSA) Regulation www.fsa.gov.uk
The Financial Services Ombudsman Complaints www.financial-ombudsman.org.uk
British Banker's Association Consumer Protection www.bba.org.uk
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Many of us will remember the proud day we received our very first pay packet. It may have meant getting on your bike and braving the wind and rain for a weekly paper round, or sacrificing your Saturday morning for a shift at your local supermarket. But it also meant you had come of age, you were independent and you were on the road to riches!
While much in your life will have changed since those carefree days, who you first decided to bank with is likely to have stayed the same. And while your bank or building society once stood for a new chapter in your life, it may now be holding you back - and your current account may well be causing you to lose out financially.
With so many deals on current accounts, sticking with the same bank year on year could be costing you hundreds of pounds. It may well be time to get on your bike once again.
What is a current account? A current account offers a safe place to store your day-to-day money. Most people will be able to open a standard current account, which will offer a chequebook and a cash card, making it easy to get to your cash and spend what you like. Most accounts will also enable BACS payments, so you can receive money transfers into your account. Some will also offer overdraft facilities, enabling you to borrow if needs be. Unfortunately, many people seem to overlook the fact that a current account also offers a way to gain interest on your cash.
TIP: Shop around for current acounts - there are plenty to choose from and you could add up to 4% to your interest rate!
Basic account For those of you who need to avoid the temptation of spending, or if your credit history is not so great, basic accounts are also available, which do exactly what the name suggests and offer a no frills facility. Usually this account just offers a cash card or maybe a debit card, which does not let money leave your account before checking the balance. Basic bank accounts do not offer an overdraft.
Start Paying Attention! Too many people do not pay enough attention to the current account market. As a result, they either end up losing hundreds of pounds by sticking with low interest rates, or they end up paying very high rates on their overdraft facility, which can be around 18% or more! There are two main things you can look out for when choosing a current account.
If you know the cash in your account is going to be topped up regularly or increase steadily over time, then start taking advantage of the high interest rates. Watch out though, some interest rates may only be on offer for a set period of time, for example six months after you open the account. After this, your rate may drop considerably or it may start to track the Bank of England Base Rate (BEBR), which can go up or down throughout the year. Others may apply until you have reached a certain amount in your account, for example £2,500.
However, if things are a little tight, and you may need a helping hand now and again, you might be better off looking for an account with a cheap overdraft facility. When it comes to overdrafts, the best advice is also the most simple – avoid them altogether! But if you are going to be in the red now and again, there are accounts which will be better suited to your needs. While some accounts may offer overdrafts on an interest free basis until you hit an agreed sum, others may provide an overdraft rate for a set period of time, particularly if it is part of an introductory offer to entice you in.
TIP: Pick an account to suit your financial circumstances. If you’re regularly overdrawn choose an account that will minimise your fees and interest charges. These will almost certainly outweigh any credit interest considerations. If you’re never overdrawn, concentrate on credit interest rates.
TIP: You may even find that some current accounts offer a better interest rate than your savings account! Firstly – sign up to the new current account! Secondly – check out the best savings accounts.
TIP: Make sure the overdraft facility is authorised and you do not exceed your overdraft limit or you will face costly penalties.
Click here for best savings accounts from Moneyexpert.
Being held to account There are many accounts out there and not all of them offer the same features. Some are more flexible than others, so make sure you check out the various dos and don’ts. Accounts with the best rates will require you to meet certain conditions. Some accounts may require you to pay in a minimum amount per month, for example £1,000. Therefore, the account of your choice may actually depend to some extent on how much you earn.
You may also find you are limited by the amount you can withdraw, for example to £250 per day.
Lastly, you may find that you have to make a minimum amount of transactions over a certain period of time. You could be held to account on any of these things – so you need to make sure you know what you are letting yourself in for.
Common features Anyone in the market for a new account should look out for certain features. One common feature is Direct Debit. Rather than wasting time writing out cheques and having to deal with lots of bits of paper, paying directly out of your account offers a safer and more reliable service. Direct debit payments can also help you to budget properly.
Also look out for how accessible your account is, how often you receive statements and whether it operates a 24 hour service. You may also want to look out for a bill payment facility.
Most standard current accounts will offer a cash (ATM) card, a chequebook and a cheque guarantee card. But also look out for standing orders, where you can arrange for a set amount to leave your account every month.
TIP: Think about what features you’re likely to need as you may find that you can get better rates for not taking certain features.
The real incentive Just about everyone will need at least the basic banking facility to keep track of his or her cash. With so many deals out there, banks like to throw in the odd incentive. Your best bet as a customer is to take advantage of what is out there, but do not let attractive incentives dictate what you decide to go for. Some of the things to look out for are cash bonuses or cashback, travel insurance schemes, breakdown cover and mobile phone insurance cover. There may also be bonuses or cashback as you spend, or exclusive deals only available to current account holders.
TIP: You may well find you can get certain incentives, such as insurance products, at very competitive prices elsewhere.
TIP: Make sure you weigh up the real cost of an incentive – is it really worth your while or could you get a better rate and be better off in the long-term with another account?
TIP: You may find that your bank offers some great financial products to existing customers. So by taking a current account, you may well be opening up an opportunity to get an excellent rate on a regular savings account.
Keeping current Although some people are still a little wary over the safety risks, internet banking is becoming more and more standard in the 21st century. Online banking is quick, easy and accessible for customers, the banks also like it because it means less work for them! Many banks offer an online service, where you are given a password and can manage your account from the comfort of your own home. With many accounts, you can set up or cancel direct debits, standing orders or negotiate a new overdraft facility. Some of the best rates may also be through online banking, as this means less paperwork and administration for the bank. However, as a condition of you taking online banking, you may be required to use it a minimum number of times per month. If you are a regular internet user, then this should not be a problem.
TIP: Although it is not all that common at the moment, there is also Account Aggregation, which allows you to bring all your accounts - even from different providers - onto a single web page.
On the other hand, many people prefer to see a friendly face when they are dealing with their money. If you are one of these, then you may want to see how many local branches there are in your area. This said, banking is not what it used to be – you will probably end up dealing with straight forward account matters over the phone, possibly through a large customer service centre thousands of miles away. Many requests, such as checking your balance, will be done through recorded messages. However, modern technology can also be very handy – some banks offer information via text message or WAP on mobile phones. If you do not fancy these new-fangled devices, you can always manage things via post.
TIP: Try to avoid logging on or checking your bank details when you are in an internet café or a place where strangers can see what you are doing.
Keep checks on your account There are various ways of making sure you know what is going in and out of your account. Bank statements, receipts from cash machines, payment slips, cheque stubs and paying in stubs will all help you to keep a check on things.
Time to move on Loyalty is undoubtedly an admirable quality. Sticking with the same bank is a sign of loyalty – but it is also a sign that you could be missing out on stacks of deals on the market. Look at it this way - you may well feel more secure with a familiar bank, but do you really want to pay hundreds of pounds every year for that feeling? That is ultimately what you are doing by not shopping around and making the most out of the competition. While the average rate of interest on a current account is around 0.1%, there are deals out there offering up to 5%! Switching means saving, so it is time to take the plunge! Switching should also be relatively straightforward and should only really take a couple of days.
Fees and charges It seems wherever you go in the financial world, you are met by fees and charges. If your bank wants you to switch to a premium account, think about whether you want what they’re offering. There may be a list of incentives but they’ll probably charge an annual fee. Do you really want the incentives or could you buy them cheaper elsewhere? However, one thing you certainly will be charged for is slipping into an unauthorised overdraft or exceeding your overdraft limit. This could mean an immediate charge, for example £20, and possibly additional percentage penalties. The best way to avoid this is to keep current with your account, either by ensuring you check your paper statement, at a cashpoint or over the internet.
TIP: Look out for cash machines with charges. These seem to be popping up all over the place – particularly in pubs and some supermarkets – so try not to use them.
Be honest about money matters One thing you need to remember is to always be honest about your finances. If you see some hard times on the horizon and you need some help, your bank is likely to be far more understanding if you let them know what the situation is, rather than just getting yourself into trouble. Unfortunately, the bank is going to think the worse if it is not given the whole picture. If you are having difficulty sticking to a budget or need to get some extra cash, you are best off speaking to your bank about it before it becomes a problem.
Students and Graduates Many banks and building societies also offer student or young persons accounts. These aim to give young people some practice in managing money – and can be very profitable for banks if students spend more down the pub than they should do. There are likely to be various incentives for students, including interest free overdrafts and gifts such as dvds, cds, gig tickets, books or travel cards.
Graduate Accounts are also available to people leaving university and usually extend some of the student perks over a 3-year period to help you manage and repay debt.
Security and Protection Unfortunately, there are always those ne’er-do-wells who will try to take your cash the first chance they get – so do not give them that chance! Make sure you keep your statements in order, rip up old ones and report lost or stolen cards straight away. You should also try to make sure you know your rights.
There is a lot of consumer protection out there at the moment, including a Banking Code, which states that banks and building societies must offer a fair service and provide certain information. You can find out more at any branch or at the British Banker’s Association website at www.bba.org.uk. You can also find more on the Financial Services Authority (FSA) website, at www.fsa.org.uk.
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MoneyExpert.com was formed in May 2003 after a management buyout of Blays, the longest established provider of comparison data to the financial services industry. The organisation provides an up-to-the minute financial comparison service allowing customers to select from all suitable products from all relevant providers. It is partnered with the financial research company Defaqto whose customers include a number of banks and insurance companies as well as the FSA. MoneyExpert.com was rated one of the top 50 businesses to watch for in 2005 by Real Business magazine.
Jason McMahon, PR & Communications Manager, MoneyExpert – 01273 716648
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