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Reviewing your Bank Account

Introduction

Three or four years at college teaches young people a lot of things: if they haven’t already found out before, they will learn all about last-minute revision and essay deadlines, hangovers, sex, drugs and rock n’ roll, although not necessarily in that order. They may even get a degree out of their experience.

The one thing university does not teach is all about bank accounts. Yet all the evidence shows that most young people will open a bank account either when they go to college or start work for the first time.

In the former case, the chances are that their choice will have been determined by student needs: the largest interest-free overdraft, a branch near your college, a handy ATM dispenser, or even the free gifts most banks hand out in a bid to win people over. In the latter case, it may simply be a case of finding the nearest branch close to work or home.

Somehow, that choice then becomes ossified: people tend to stay with that account for many years, sometimes decades. They may grumble, but they remain loyal. Banks rely on that loyalty, or inertia, for their profits.

Yet the reality is that attitudes are no longer necessary today. Many of the obstacles in the way of switching bank accounts are no longer there: almost all banks now pride themselves on the ease with which they can manage the transfer over of standing orders and direct debits, making a switch from one account to another almost painless.

In turn, this means you can afford to be more sophisticated in your approach.

Here are five things you should be looking for:

1) Good rates of interest

This speaks for itself. What you might also want to know is how quickly your bank responds to base rate changes from the Bank of England. A good bank will raise its own rates to account holders within four weeks.

All you need to do is check when base rate changed and ask your chosen shortlist of banks when their rates moved in relation to the BoE decision.

However, bear in mind that although some banks will offer up to “60 times interest” on their accounts compared to others (the difference between 6% gross and 0.1% paid by most current accounts), the reality is that it does not make as much difference as all that.

This is because most of us pay our monthly wages into an account and then spend it almost immediately, so the period of time in which it can actually earn that interest is likely to be limited.

2) Low overdraft rates

This too speaks for itself. However, it matters much more in cases where you know, or suspect, that you are likely to be overdrawn regularly.

Almost any bank account search engine will tell you what overdraft rates are and may even allow you to compare between accounts.

You should be looking out for the following:

• Any annual fees involved in setting up an overdraft facility in the first place

• Agreed overdraft charges and whether there is a “buffer zone”, often between £10 and £50, whereby overdraft fees will not be incurred

• Unauthorised overdraft charges, which will include a rate of interest, usually of anything up to 30%

• Ancillary charges. These may include the ubiquitous letter telling you that you are overdrawn and charging £30-£35 for doing so. It may also include an individual charge of up to £30-£35 for each standing order and direct debit that is paid out of your account OR refused while you are overdrawn. In some cases, it also includes a daily rate for each day in which you make withdrawals

• Also, check a bank’s policy on overdraft charges. Some, like Abbey, have recently said that customers breaching their agreed overdraft limits even by one penny will incur charges

Note that the issue of excessive overdraft charges is currently under investigation by the Office of Fair Trading. Meanwhile, if you feel you are being overcharged by your current bank, it is possible to claim the money back. There are many websites where you can download a complaint letter and personalise with your details. See our [LINK]Reclaiming on excess Bank Charges Fact Sheet.

3) Good service

What you should be looking at is things like the speed with which a phone is picked up when you call, as well as how queries are dealt with.

There are two extremes of service. One involves an automated multiple-choice exam to get through to the right department, followed by up to 20 minutes’ wait to speak to a live human being.

The second involves picking up the phone and having our call answered instantly by someone who asks enough questions to establish your identity and then processes your requests instantly.

For internet banks, it is a choice between having to post all cheques to a service centre, or nipping into the local high street branch of the internet bank’s parent and simply popping a cheque into the cash box by the door.

Most of us would consider the second option is preferable in both cases.

We may like the convenience of the internet of phone, but many of us still like speaking face-to-face with someone at some stage. So if these things matter to you, make sure you find out first what is available.

The chances are that you won’t know about how good a bank is until after you have opened the account. But asking friends does not hurt.

4) Proper internet banking facilities

The minimum you should be looking for is

• Access to the bank’s full range of products, including credit cards, overdraft facilities, credit cards, personal loans and ISAs

• Full information in terms of transactions, including “today's transactions”, real-time “mini-statements” for a previous number of transactions, plus full statements showing your balance at the close of business on the previous day

• The capacity to sort data by ATM withdrawal or cheque credits

• Online “sweep facilities” from savings to current account or vice versa.

• The potential to export your data to accounting packages or “account aggregators”.

• Good security.

More pages

Page 1: Introduction
Page 2: 5) Switching

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