The cost of many financial products just goes up and up and up. Over the past few months we have become used to hearing about the plight faced by many homeowners. With the credit crunch showing no sign of abating, more and more homeowners are finding it difficult to remortgage when they come to the end of their current deal. Many have seen their monthly mortgage repayments rise, with the worst hit struggling to get any mortgage deal at all.
But they are not the only ones feeling the pinch. Many current account customers are also being squeezed, with banks cutting the interest paid to those in credit while simultaneously increasing overdraft rates.
Last April the Bank of England cut interest rates by 0.25 percentage points. Such a move usually triggers similar movements in both savings and mortgage rates – although on the whole products like bank accounts, credit cards and personal loans remain largely unaffected.
But this time a number of banks have used the change in interest rates to tweak rates on their leading current accounts, but this has rarely worked in the customer’s favour.
The changes are stark, with some of the best-paying accounts imposing the heftiest cuts. Nationwide building society which boasts in its advertising that it is "proud to be different" has really tightened the screw. From June 1 it will knock a 1.75 percentage points off its credit interest rate while at the same time increasing overdraft charges by a massive 3 percentage points. As a result FlexAccount customers will now receive 2 per cent interest when they are in the black and get charged 12.9 per cent interest when they are in the red.
Halifax has lopped a full percentage point off the interest rates it pays on both its High Interest Current Account and Ultimate Reward account (both will now pay 5 per cent). At the same time the bank, which promises customers a little extra, is upping its overdraft rates by 0.6 per cent – to 19.5 per cent. This applies to its High Interest and basic current accounts.
You could argue that none of these accounts are ultimately as rewarding now. But these accounts still do remain competitive compared to the current account offered by the main high street banks.
These aren’t the only bank re-jigging their rates. HSBC, Alliance & Leicester, NatWest, Royal Bank of Scotland, Smile and Yorkshire Bank have all either cut credit interest rates or bumped up overdraft rates.
If this wasn’t bad enough a smaller number of providers are also ratcheting up fees and charges. A&L for instant has increased the foreign usage fees that are imposed everytime you use your card overseas. And Lloyds TSB, NatWest and RBS have all increased the monthly charge on their "premium" account, where customers pay a monthly fee for a range of additional services. These can range from "free" travel and mobile phone insurance to preferential rates on mortgages and credit cards.
If you have been affected by any of these changes then now may be the time to consider switching account. But with so many accounts to choose from it often isn’t easy spotting which is the right deal for you.
But the following three steps should help you identify a suitable account:
1. Decide how you want to bank: are you happy with just an online account, or do you want telephone banking or a branch nearby. Shortlist the best-paying account that offer the services you need.
2. Do you use your overdraft? If you do dip into the red, even occasionally then opt for the account with the cheapest borrowing rates. Currently A&L offer one of the most competitive deals.
3. Do you stay in the black? If so then you want the account that pays the best credit interest. A&L, Abbey and Halifax offer some of the better rates. But remember although the numbers look high (up to 8.5 per cent in some cases) these interest rates are usually paid on fairly small amounts, as most of the money going into a current account also goes out of it during the month.
Remember that for many people service is important – and First Direct – which does not pay particularly competitive rates – scores highly on this. It also does not unfairly penalise customers who dip into the red without authorisation, provided they resolve the issue quickly.
By Emma Simon