Thursday, 2 December 2010
The secret ways banks penalise you
I really don’t think you should ever pay for a packaged current account. There’s very little point in paying a monthly fee - which could cost anything from £5 to £25 - unless you’re likely to make full use of extra benefits on offer.
Typically, packaged current accounts offer all the usual banking services plus added perks such as AA breakdown cover, travel insurance, mobile phone insurance and ID Theft protection for free. You may even be entitled to preferential rates on the bank’s own product range. But freebies like these still don’t justify the expense of paying for banking.
No such thing as a free bank
Even ordinary current accounts, which don’t charge a monthly premium, aren’t actually what you would call ‘free’. After all, every single one of them has a charges list as long as your arm, and somewhere along the line you will end up shelling out for something. But that doesn’t mean you shouldn’t limit these costs as far as possible. Here are four ways you can beat your bank at its own game.
1. Disappearing interest
You may not think of earning little or no interest on your current account as a cost, but that’s effectively what it amounts to. Remember, there are almost 80 accounts which pay absolutely no interest, which means you’re actually lending your cash to the bank for free. Even worse, if you tend to keep a healthy balance in your account, its real value is gradually being eroded when inflation is a high as it is now. You can ensure your bank pays you, rather than the other way around, if you switch to high-interest current account..
2. Overdraft charges
Going overdrawn is another way so-called free banks can really sting you. In fact, the overdraft charges from some banks are truly extortionate. Lloyds TSB is a classic bad example. From December, not only is the bank planning to penalise its customers with a monthly usage fee when they go into the red using a planned overdraft, but they’ll also continue be hit with a high EAR on overdraft borrowing. So effectively account holders will be penalised twice for the same thing - and they probably won't even realise it until their statement arrives. It’s a shame Lloyds has seriously let itself down here when it does pay generous rates on reasonably high in credit balances.
If you do tend to slip into the red every month, don’t just put up and shut up! Bear in mind there are 5 ways to get and yet some overdrafts are more expensive than payday loans– why should you pay high interest rates when you don’t have to?
3. Extra costs to avoid
Current accounts and credit cards always come with an array of sneaky extra costs. If you accidentally exceed your credit card limit, you’ll be charged £12. If you pay your bill late, you’ll be charged another £12. Worse still, returned items - which occur when there’s insufficient money in your current account and your bank refuses to honour the payment - will likely cost a good deal more.
There’s not a great deal you can do to stop these charges other than to avoid triggering them in the first place. So do your best to play by the bank’s rules or you will live to regret it. Use our free online banking service to keep up-to-date with all your accounts using a single log-in to lovemoney.com. That way, you'll be able to keep track of what's going on with all your different accounts.
You should also watch out for miscellaneous fees on other banking services. The cost for a banker’s drafts is truly extortionate with many banks charging £20. You’ll also be charged for just about anything your bank can get away with. Think duplicate statements, stopping cheques and CHAPs payments to name just a few.