ESCAPE THE BANK FEES MAZE
Almost every bank has changed the way it bills you for slipping into the red. So here's how to find the right current account for you...
HAVING a modest overdraft in place offers peace of mind that should a bill payment come out early of your account, or one go in late, you’re covered.
But over the past six months major High Street banks have changed the way they charge customers who go into the red.
And while some people will be better off, others face fee increases of up to 150 pc. So if you regularly dip into your overdraft, now is the time to check whether you could get a cheaper deal elsewhere.
If you don’t have an overdraft, it is still vital that you make some time to review your bank account. By failing to scour what else is on offer, you could be missing out on cash perks or cheap overseas spending.
Here, Money Mail has delved into the finer details to help you navigate the current account maze.
AVOID CHARGES IF YOU ARE OVERDRAWN
LLoyDS, Halifax and Bank of Scotland overhauled their charges system in November, introducing a daily fee for going overdrawn by more than £6.99.
They are now charging customers 1p per every £7 they go overdrawn per day.
This is the equivalent to an annual interest rate of 52 pc — and is higher than many of the most expensive store cards.
Previously, Lloyds and Bank of Scotland customers were charged 19.89 pc, plus a monthly fee of £6, but could go £25 overdrawn before incurring any charges.
Halifax customers were charged between £1 and £3 a day depending on the balance.
While the banks claim nine out of ten customers would be better off under the new system, two million people could end up paying considerably more.
The charges particularly hit bank customers who regularly find themselves in their overdraft and borrow around £650 or more.
For example, someone using an arranged overdraft of £1,000 for ten days a month is now paying £14.28 in fees, compared with around £10.88 before the change.
Customers with NatWest and RBS Select accounts or TSB Classic accounts are charged £6 a month, plus interest for using their overdrafts, regardless of whether they are overdrawn for one day or a full 30 days.
However, NatWest and RBS allows customers to use £ 10 of their overdraft interest-free, while TSB allows £25 interest-free, plus an additional £10 buffer before levying any charges.
Santander charges its 123 account customers £1 per day for overdraft borrowing of sums up to £2,000, while Barclays charges 75p a day for going up to £1,000 into an overdraft.
If you regularly use your overdraft, switching to a different account could save you paying out high fees.
Some banks let customers use a certain amount of their overdraft before they are charged. First Direct offers its customers a £250 fee-free overdraft, while M&S Bank’s current account provides its customers with a £100 interestfree overdraft.
Nationwide’s FlexDirect account offers a fee- free overdraft for 12 months to new customers — effectively providing customers with a year of breathing space to clear old debts.
However, you must have a good credit score in order to be accepted for a decent overdraft deal.
Avoid going over your limit at all costs. A report published last year by City watchdog the Financial Conduct Authority found some banks charged customers up to 800 pc — more than a payday loan — for exceeding their limit. It can also damage your credit rating.
REWARDS IF YOU ARE IN THE BLACK
IF you sit comfortably in the black and rarely, if ever, use an overdraft facility, then you should be looking for an account that rewards you for being in credit.
Interest rates are still at record lows, even after the recent increase in the Bank of England base rate from 0.25 to 0.5 pc. Despite this, there are still current accounts around that will pay some interest on a positive balance. The Nationwide FlexDirect account offers customers 5 pc interest on the first £ 2,500 saved for the first year, but drops to 1 pc after that. In order to qualify, you must pay a minimum of £1,000 into your account each month. Tesco Bank is offering 3 pc interest on balances of up to £3,000 until April next year.
Customers can also get one Clubcard point per £8 spent on their debit card — or one point per £1 spent in Tesco.
To qualify, you must pay in at least £750 per month and have three active direct debits set up from the account.
The Santander 123 account is no longer offering the 3 pc interest rate that made it one of the uK’s most popular current accounts.
But it still pays 1.5 pc on balances up to £20,000 to customers paying in at least £500 per month, with two direct debits from the account.
The account also pays cashback on bills, including 1 pc on water and council tax, 2 pc on energy bills and 3 pc on mobile, phone, broadband and TV bills paid by direct debit.
you can get also earn between 1 pc and 2 pc cashback if you have a mortgage or home insurance with Santander. But watch out for the £5 monthly fee and be sure you will earn enough in cashback to more than cover the cost of the account — or it won’t be worth it. NatWest’s Reward account costs £2 a month and pays 2 pc cashback on bills — for council tax, water, energy, mobile, phone, TV and broadband — paid by direct debit. Customers have to pay in £1,500 a month to the account and register for online or mobile banking to qualify for the deal. While the TSB Classic Plus account doesn’t pay a percentage as cashback on bills, it is paying £5 per month to customers with two direct debits paid from the account and an extra £5 if they make 20 debit card payments a month, until December. It also pays 3 pc interest on balances up to £1,500.
PERKS FOR SWITCHING
Some banks offer to pay new customers a switching bonus if they move over their current account. For example, Halifax is currently offering £75, which it pays within seven days to customers moving to Reward account. It also pays an extra £3 a month to customers who pay in at least £750 a month, stay in credit and have two direct debits from the account. First Direct is offering new customers £100 for switching, while M&S Bank will give switchers a £125 m&S gift card, plus up to £5 in m&S vouchers a month for the first year — worth up to £185 in vouchers in total.
Deals change all the time — until last week, for example, HSBC was handing out up to £200 to new customers — so keep an eye on bank websites and money advice sites such as moneySavingexpert for updates on the latest offers.
Be aware that these offers are usually only open to customers who switch using the Current Account Switch Service run by Bacs, the organisation which runs the direct debit system in the UK.
The free service transfers regular incoming payments, such as salaries and benefits, and regular outgoing payments, such as utility or mobile phone bills and direct debits, from your old account to a new one within seven working days.
Switching only works if you are prepared to completely replace one account with another. If you want to keep your previous account open or have your direct debits going out from another account, then you are unlikely to be able to use the switching service and probably won’t qualify for any cash bonuses.
Some banks also say customers who have held an account with the bank previously or who have switched to the bank within the last six years are not eligible for the switching perks.
And it is important to check the account you are switching to is right for you.
If the account charges a monthly fee or offers benefits you can’t use, for example, it may not be right for your circumstances.
Always read the small print before being tempted by any offers.
SAVINGS IF YOU TRAVEL
IF YoU regularly travel to europe or holiday further afield, it could be worth opening a separate account that lets you use your debit card abroad for little or no cost.
While specialist credit cards can be the cheapest way to buy things abroad, there are some current accounts that are tailored for people who want to regularly use a debit card or withdraw cash while they are away.
major High Street banks can charge sky-high fees for using debit cards abroad. For example, TSB charges £1 per transaction fee, plus 2.99 pc of the total spend on debit cards used overseas. If you take cash out, it charges a minimum fee of £2 (maximum of £4.50), plus 2.99 pc of the amount withdrawn.
Santander allows customers to withdraw cash for free from its ownbrand cash machines in Spain but otherwise charges 2.75 pc of the value of overseas cash withdrawals, plus a minimum fee of £1.99. It also charges a fee of £1.25, plus 2.75 pc of the value of debit card spending.
most of the best foreign spending deals are offered by smaller, ‘challenger’ banks. metro Bank does not charge anything for non- sterling transactions or cash withdrawals using its mastercard debit card in europe, which includes all eU countries and six other nations including Switzerland, Iceland, Norway and monaco. Customers travelling outside europe will be charged 2.75 pc of card spending — but no separate transaction fee — and a flat fee of £1.50 for cash withdrawals. If you frequently travel outside europe, consider a deal such as Virgin money’s essential account, which lets customers spend on debit cards anywhere in the world for free and also pays 0.75 pc interest on balances. But bear in mind it does charge a flat fee of £1.50 for cash withdrawals. Smartphone-savvy customers can also try appbased banking like Starling or monzo, which provide users with a card that can be used anywhere in the world for free. monzo also allows customers to withdraw up to £ 200 in foreign currency abroad every 30 days for free, then charges 3 pc. Starling allows users to withdraw up to £300 in cash a day for free. Be aware that even if your current account offers free cash withdrawals, you may still be charged fees or receive a poor exchange rate set by foreign cash machines that are out of UK banks’ control.
EXTRAS YOU DON’T NEED
PACKAgeD bank accounts include extras such as travel insurance, mobile phone insurance, breakdown cover and even free cinema tickets for a monthly fee.
These can be good value for money, but only if you need the extras and are eligible to use them.
If you already have relevant insurance, make sure you cancel it if you are signing up to a packaged bank account so you aren’t paying twice.
And check the small print. most banks offer standard travel insurance policies that may not apply to people aged over 70, while the standard breakdown cover offered by your bank may not apply to older cars or those driven in europe.
If you suspect you have been sold a packaged bank account deal that isn’t right for you, you might be liable for compensation.
You can contact the Financial ombudsman for advice or to complain by calling 0800 023 4567 or visit financial- ombudsman. org. uk/consumer/complaints.