Monday, 18 October 2010

6 things your bank won't tell you

When it comes to playing banks at their own game, you need to have your ears pricked and your eyes peeled. Financial providers are there to make a profit,  You can’t expect them to act be there just to serve you.

When it comes to transparency and ethics, some banks certainly don’t shower themselves in glory.  Highlighted here are the six sneaky tricks that banks try to get away with - so they don’t slip by you unnoticed.
1. Plummeting savings rates
A recent investigation by The Daily Mail found that some of the biggest banking names on the high street routinely fail to tell savers when their rates are being dropped.
Many of the top-paying savings accounts has bonus rates which end after 12 months, leaving the customer with a measly rate of interest. Currently, your bank isn’t obliged to keep you informed as and when this happens. After all, we should all have read the terms and conditions when we signed up.
But wouldn’t it be nice if you got a letter or email telling you exactly where you stand?
2. Negative payment hierarchy
Most credit cards operate a negative order of payment. Essentially, that means the cheapest debt on the card (that charging the lowest rate of interest) is cleared first - and the most expensive debt is cleared last. Of course, this works in the provider’s favour, and boosts its profits nicely.
Unfortunately, it’s often difficult to find out whether a credit card operates in this way before you apply: The order of payment is usually buried deep in the terms and conditions, between pages and pages of small print. So, skim-reading financial terms and conditions just isn’t good enough, and could land you with some very nasty surprises.
There are a few credit cards that operate a positive order of payment (clearing your most expensive debts first). Saga, Nationwide and Co-op credit cards all work like this, so it’s worth tracking them down and seeing whether they meet your needs.
3. Available credit
 You’re at a certain disadvantage when making a credit card application - because providers keep crucial information to themselves until the very last stage of the process.

Notably, you’re usually not told what your credit limit will be until your application is complete, accepted and processed. For example, if you need a limit of £2,000, but you’re only offered £1,000, you may regret making the application in the first place. However, it will be too late to back out, in the sense that the application will already be on your credit record.

Surely there’s a way providers could provide this information at an earlier stage in the process, to avoid people taking out cards that don’t meet their needs?
4. Hidden arrangement fees
 My bank tried to hit me with this sneaky rip-off last year. I’d had a £1700 overdraft limit for the last year. Then one day, I got a letter from my bank, saying it was delighted to be able to arrange a £1700 overdraft limit for the next 12 months (in other words, not ‘arranging’ anything new at all!). Further on - right at the end of the fourth page to be precise - I found a single sentence saying they’d be charging me a £25 fee for this ‘privilege’.
When I visited my local branch and challenged them, the charge was dropped ‘as a gesture of goodwill’. It’s another example of banks trying to slip fees in under the radar… and another reason to read all the way to the end of the paperwork!
5. Interest on monthly instalments 
If you buy home insurance from your bank, you’ll probably be asked whether you’d like to pay all at once, or in monthly instalments. Monthly payments sounds great in theory, because it means you don’t have to find a large chunk of cash all at once. However, steer clear if at all possible: Pay like this and you’ll usually be charged a hefty rate of interest for the privilege.

Even worse, providers don’t always make this clear. When the monthly payment option was offered to me over the phone, the payment of interest wasn’t even mentioned. I was only told about the hefty rate when I queried it directly. 

If you do need to pay monthly, you’re better off using a 0% on purchases card to pay upfront, then  spreading your payment on the card, interest-free.
6. When you’ve made a mistake 
Everyone makes mistakes and a financial mistake can be disastrous because banks don’t tell you that you’re sinking further into financial chaos. If you exceed your overdraft limit for example, you could face a hefty fine and an extortionate rate of interest. And of course, it is not in the interest of the bank to tell you, because every day that passes by, they’re benefiting from your error. This is one good reason why you should always check your balance and transactions on a regular basis.

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