How to save money: Bank accounts

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Quick stats | Simple saver | Advanced saving tips | Nice little earner

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Re: How to save money: Bank accounts

Bank accounts

• <LI class=byline>Sam Dunn <LI class=publication>The Guardian,
• Saturday June 14 2008
• Article history

Quick stats

£300 The highest annual charge for an "added value" bank account with features such as travel insurance. Even some standard packaged accounts now carry fees of £12 amonth, or £144 a year
£5bn Total annual amount the banks charge for bouncing our cheques and direct debits and in fees for exceeding overdraft limits. That's equal to £200 a year for everyone with a bank account ...
Simple saver

Minimum £78
Dump your "packaged" bank account, unless you really are using all the benefits it offers. For example, Barclays' basic First Additions account costs £78 a year, but its chief features are mobile phone insurance, card protection and a £100 interest-free overdraft. Ask yourself if these products are really worth £78 a year to you. If not, switch your account to a standard, fee-free current account instead.
The more expensive packaged accounts (costing as much as £300) give travel insurance and breakdown cover. You may well be able to find cheaper cover elsewhere: annual worldwide travel insurance with winter sports cover, for example, can be found at a range of providers online for under £40 a year, while breakdown cover can be found for under £50 if you check prices at any major comparison website. So why are you paying your bank £200 or more for the same items?
Advanced saving tips

1. Clean up your direct debits
Ask your bank for a full list of all standing orders, direct debits and recurring payments. Examine it meticulously. Should you still be making these payments? Many people carry on paying direct debits for things they no longer need: cancel any payments you don't have to make immediately. Be extremely wary of "recurring" or "continuous authority" payments, where a subscription is taken from your account every year. Also, avoid setting up a direct debit to pay the minimum amount monthly on your credit card bill. It's easy, but you end up paying huge amounts in interest.
2. Reclaim your bank fees
Britain's free banking model is based on the income banks earn from fees and charges (£5bn last year) if customers breach their agreed overdraft limits. Fees can be as high as £39 for a bounced cheque and £28 each day an account is over its authorised limit.
The first time you're charged for such an event, ring your bank and ask to be refunded. Banks will usually waive at least one or two charges - although they won't for serial offenders. However, in one of the biggest consumer rebellions in decades, more than 1 million people have put in claims for what may be unlawful and excessive charges. So far, the banks have repaid customers more than £500m in charges, although a moratorium on further payments is in force while the banks appeal against a preliminary judgment in a High Court test case. The Financial Ombudsman Service has also halted examining cases until the court procedings are finalised. Despite the moratorium, consumer groups such as Which? and Moneysavingexpert.com say it's still worth putting in a claim "as a marker".
Step 1 Identify how much you have paid in charges. To help you, download our pro forma letter from guardian.co.uk/money which you can send to your bank asking for a schedule of charges you have paid. Don't be put off if your bank says it can't provide the information: the Data Protection Act allows you to demand the information a company holds on you within 40 days and for a maximum fee of £10.
Step 2 A second letter on our website is a request for the bank charges to be refunded. Print it off and send it by recorded mail.
3. Switch accounts
Fact: you are more likely to divorce than switch your bank account. Most people see the benefits - maybe just a few pounds extra a year in interest - as not worth the hassle (or the risk of crucial direct debits and standing orders failing to be paid). But higher interest and better service can make the hassle worthwhile.
The best deals are from newer players aiming to steal market share from the big four banks. Names most likely to offer a good deal include Halifax, Alliance & Leicester and Nationwide, plus some of the smaller building societies including Coventry and Norwich & Peterborough. Most offer interest of 6% to 8% on cash balances held in current accounts, although the maximum balance earning that interest is usually capped at no more than £2,000.
Switching is relatively easy: your bank must pass information to your new bank within three days, while the receiving bank must open the account within 10 days once the application has been approved.
What do you need from a current account? Do you go overdrawn frequently? You will want a very different account than someone who always stays in credit. Moneyfacts.co.uk lists the best-buy current accounts that pay interest on accounts in the black, while Moneysupermarket.com and the Guardian's own compare and buy tool (guardian.co.uk/money) help you find the best accounts for your needs.
Nice little earner

Some banks will pay you to come to them. For example, First Direct pays £100 to new customers, and promises that if you're not happy after six months, it will switch you to another bank and pay you another £100. So check around for this kind of golden hello.
Planet saver

Co-op (and its Smile internet arm) is the leading ethical bank. Nationwide is a mutual, being owned by its members rather than shareholders, while some credit unions (financial co-operatives owned and controlled by their members) offer a bank account with a debit card. See abcul.org for more details.