Tony Levene on why you should be choosy in selecting a current account

[Legal Beagles]

However beguiling the bank package, there's an essential but little known law that says you should be very choosy in selecting a current account. It's called the "right to offset" and is backed by legal decisions dating back to 1895.
This law could place your cash in jeopardy if you fall behind with loan repayments. It allows banks to loot your current account to pay for loan arrears if both the loan and the current account are with the same bank.
The bank will not always bother to ask for permission, although HBoS says it gives seven days' warning.
But while it cannot force you into an overdraft, the effect of grabbing your entire balance from your current account can easily send you further into the debt spiral. And it's not just current accounts. If the bank finds out you have savings, it can take these as well.
It can be tricky knowing how bank groups work. "The situation with set off between, for instance, a credit card account and a current account with different banks within the same banking group will depend on the terms and conditions," the British Bankers Association says.
Barclays and Barclaycard are the same for offset, and that also applies to HBoS brands such as Halifax, Bank of Scotland and Birmingham Midshires.
But NatWest and Royal Bank of Scotland are legally distinct. Tesco Personal Finance, part-owned by RBS, Sainsbury's Bank, 50% owned by HBoS and M&S Money, (part of HSBC) are separate from the banks that back them.
One essential rule is that both the account in arrears and the account that is being looted must have the same ownership, so the rules for joint accounts can be tricky. If you're behind with a mortgage held in joint names, the lender can raid your personal account. But if the loan is in your name alone, then a bank cannot claim the right to offset against a joint account as that would hit the other owner.
The solution is simple. Never use the same bank for loans and savings unless you are sure you will never fall into debt.

• Current accounts
• Banks and building societies

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***Re: Tony Levene on why you should be choosy in selecting a current account***

Bumping this as many people fall foul of this, accounts such as the One account and Intelligent Finance etc are among the most popular examples of how you can become trapped.