The best current accounts for the over 50s
While there are plenty of attractive current accounts on the market, most of them seem to be geared towards people below retirement age, with Alliance & Leicester being the only provider offering an over-50s product.
So why do ‘silver consumers’ get such a rough deal?
There are several reasons. First, many people, and the elderly in particular, tend to remain loyal to their current account provider instead of searching for a better deal. Research from moneysupermarket.com shows that more than a quarter of us have only ever had one current account.
Kevin Mountford, head of savings at moneysupermarket.com, explains: “It’s a shame consumers seem hesitant to change current accounts, as most providers make the process as easy as possible.
"If you could buy the same TV for £210 less somewhere else, you wouldn’t think twice about it, but when it comes to their current accounts, it seems as if consumers don’t care if they miss out.”
However, while there’s no excuse for most people not to change their current account provider, as it’s fairly straightforward, this is not the case if you are a pensioner. This is because it’s not that easy to switch current accounts if you’ve retired and no longer receive a big monthly income.
Pensioner Joyce Anderson would be only too happy to switch if she were in a position to do so. In August last year, she wrote to Moneywise because she was frustrated that a lot of the current accounts on the market required a certain level of income each month that was too high for many retirees.
Joyce’s predicament reflects the situation of many pensioners, who are trying to get the best rates possible but are seemingly defeated by the system because their pension income isn’t big enough to qualify for one of the top-end current accounts.
“Some accounts require as much as £1,500 a month,” says David Black, principal consultant for banking at Defaqto. Unless you have a regular income of this size, many older people have to stick with less competitive accounts.
Another reason that many older consumers miss out on the best deals is that they don’t have access to the internet or are not confident managing their finances online. Apart from the fact that the internet is a great place to research deals and shop around, many of the best current accounts are only accessible on the internet or phone.
While there is a growing band of highly competent and confident ‘silver surfers’, others are less comfortable with computers, or at least are wary of managing their finances online. Figures from Age Concern reveal that 41% of people aged 65 to 74, and only 20% of people aged 75 and over, used the internet in 2007, compared with 71% of the overall population.
“Headline rate accounts are often internet-only, so if you’re not happy going online then you will have to settle for something down the local shopping centre where the deals aren’t so good,” explains Black.
Of course, relying on your local high street means you get less choice of providers and, for older pensioners who don’t drive, there’s the added consideration of choosing a bank that can be easily reached on foot or by public transport.
A number of providers allow customers to access their current accounts through their local post office branch. However, last year the government announced that 2,500 branches would close down.
Gordon Lishman, Age Concern’s director-general, thinks that these closures will hit pensioners hard. “Post offices allow essential free access to cash in rural and deprived urban areas where there are fewer banks. This is particularly important for those living on a low income,” he says.
Apart from the hurdle of fewer branches, some banks and building societies still don’t give customers access to their accounts through the post office. Lishman believes this problem also needs addressing.
“All banks and building societies should rise to the challenge and allow their customers to access their cash in this way,” he says. “The government should pressure these organisations to make this happen.”
So far, not so good. But could there be a solution in the shape of Alliance & Leicester’s Premier 50 current account, the only one aimed at older customers?
“It’s a fee-paying account [£10 a month], offering travel insurance, health benefits and 6% interest,” says Tracy North, personal finance spokesperson at uSwitch. At a glance it seems like a great option, but a closer look reveals that the hearty interest rate only lasts a year.
“After one year the interest rate drops to 1% below the Bank of England base rate,” she warns. “Considering this dropped to 1% in February 2009, customers were only getting 0% interest. This is something to watch out for with all accounts that offer higher rates of interest.”
Black points out, though, that Alliance & Leicester is currently reviewing its interest rates, in an attempt to stop customers "walking away" after just 12 months.
What's out there?
You should be wary of current accounts that come with packaged deals as they rarely offer a good deal. Black warns: “Banks push the added-value ranges, as these are the packaged accounts with extras you have to pay for, some of which you won’t need, such as travel insurance.”
So, instead of picking an age-specific account or an account that offers a packaged deal, you should simply try and find the best current account deal that would be suitable for you.
“It’s important that the over-50s look at the whole market for financial products, and not just those that specifically target the older generation, as they do not always offer the most competitive rates,” says North.
Black agrees: “Just because an account is linked to the over-50s doesn’t mean it is a good deal.”
In Moneywise’s 2008 Current Account Awards, Alliance & Leicester’s Premier Direct current account was ranked ‘best of the best’, both for interest on balances and for overdrafts. There are no monthly charges on this account, and the deposit requirement is £500 a month compared with other top-performing accounts such as Abbey and Coventry Building Society, which both stipulate monthly deposits of £1,000.
The account offers the same attractive interest rates as the Premier 50 account – however, you have to access it online. Alliance & Leicester’s Premier current account (be warned, it’s easy to be confused by the similar names) doesn’t have such an attractive interest rate – only 0.5% – but you can access it through a local branch: it has no fees; includes free annual multi-trip European travel insurance for under-65s; and has a 0% overdraft with no usage fees for the first year.
Cahoot’s online account doesn’t require a set amount of money to go into its account each month but, once again, the internet issue rears its head. A third of over-70s say they have “no confidence at all” in banking online, according to Age Concern. The charity is trying to change these attitudes and runs sessions on the internet for older people. If you’re interested, phone 0800 009 966 to find out where your nearest courses are.
If you’re prepared to set up the Cahoot account on the internet or over the phone, you can then access your money at the post office. You can cash personal cheques with a Cahoot account as well as with the Bank of Ireland, Barclays and Lloyds TSB.
However, if you are happy to go for an account without a chequebook, you’ll have more options, such as slightly higher rates in some cases. According to Black, chequebooks have a limited shelf life in any case.
If you don’t fancy banking with Cahoot but have only a small amount of money going into your account, then you could opt for a basic bank account instead of a current account. “These offer no overdraft facility [and no interest] and usually only a quasi-debit card, and, in the main, are for people who are bankrupt,” says Black.
“But, theoretically, if you just want somewhere to keep your money and you don’t ever get overdrawn then this would probably be sufficient.”
Perhaps a better option would be an account that allows users to transfer funds into a linked savings account. Black explains: “Saving sweeps automatically take money out of your current account, then move money back if you are overdrawn.”
Undoubtedly, when it comes to current accounts, there is less choice for older people, but by taking a flexible approach to your finances you can ensure you still get an account to suit your needs.
Top tips on finding a great current account
* Most bank websites have branch locators. You will have to key in your postcode, street name or town to find your nearest branches.
* Look up your local Citizens Advice Bureau in the yellow pages and phone for information on banks in your area.
* Ask at your nearest post office.
* Call directory enquiries, such as 118 500 or 118 118, but beware of the call charges.
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.
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.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.