Ditch your current account for a better deal
We all know about the importance of moving our savings accounts on a regular basis and reviewing our insurance policies each year.
But many people still fail to review what is, arguably, the most utilised financial product – the current account.
But this apathy comes at a price. For a start, many providers currently offer zero interest to their current account customers. According to data provider Defaqto, offenders include: Barclays; Firstdirect; HSBC; Nationwide; and the Co-operative Bank.
In addition, many providers continue to tweak their charges – catching many customers out.
For example, from 6 December, Halifax and Bank of Scotland will start charging overdrawn customers £1 a day. This charge will replace overdraft interest and bank charges – but whereas a month spent £100 overdrawn would have previously cost under £2, it will now set customers back by as much as £31. People with overdrafts of £2,500 or more will be charged £2 a day.
Dominic Lindley, personal finance campaigner at Which?, says the £1 daily charge is equivalent to 365% APR if you’re £100 overdrawn. "Anyone who's unhappy with the new charging structure should vote with their feet by shopping around and switching to a current account that best suits their needs," he adds.
The past few years have seen packaged accounts – where you pay a monthly fee in return for an account with added extras – boom in popularity. But research from Which? reveals that these deals can cost as much as £300 a year, although many of the ‘benefits’ are just not worth this price.
Which? also found that 22% of its members with packaged accounts had been automatically upgraded by their bank.
David Black, head of banking at Defaqto, says anyone considering a packaged account ask themselves the following questions:
* Do you need the benefits?
* Are they of suitable qualify for you?
* Could you get them cheaper independently?
Insurance products offered as part of packaged accounts should also be scrutinised carefully. For example, if travel insurance is included check to see which areas it covers (the US might be excluded, for example), and whether it covers things like winter sports. There might also be an age limit, so check to see if this applies.
Some top current accounts
|Current account||AER (balances
up to £2,500)
|Abbey||6% for 12 months
£1,000+ per month
|n/a||n/a||Earn £5 interest a month
provided you deposit
£1,000+ per month
|Source: Defaqto 23/10/2009|
|Norwich & Peterborough
0% for six months
|24.9%||0% on in-credt
£100 interest-free overdraft
|Source: Moneyfacts 23/10/2009|
A current account that charges a monthly fee in return for a “package” of additional services, such as travel insurance, credit card protection, mobile phone insurance, identity theft insurance, car breakdown cover or a “concierge service” that will book airline and theatre tickets or restaurant tables. However, many consumer experts say the features are overpriced and that more competitive deals exist elsewhere in the market and that very few packaged account holders actually take advantage of the features.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.