Direct banking services are proving ever more popular - and no wonder, says Tony Lyons
ALL THE main banks now offer their customers telephone banking, ranging from the most basic to a fully comprehensive service. By the end of this year, according to Datamonitor, a management consultancy and research group, around a third of the UK population with bank accounts will be using the phone to do some of its banking.

This revolution started a decade ago when First Direct, a division of Midland Bank, became the first telephone-only banking service. Open 24 hours a day, every day of the year, it quickly caught on, and today has nearly 1 million customers.

It appealed to all those who were fed up with the high street banks, that were then only open until 3pm, and frustrated with having to face long queues at their branch.

With all the telephone banking services you can pay bills, so long as the destination has been pre-arranged, check balances and recent transactions, order cheque books and statements. And a couple, including Citibank, allow you to run your account over the Internet. Most telephone banking is either free or costs the local phone call rate.

Before being able to use a telephone bank, you will have to register to use its services. If this is an offshoot of your high street bank, this is easy to arrange. Just ask next time you visit the branch.

However, if you want to move your account completely, most of the direct providers will give you a pack that will arrange the transfer. Then, once accepted and registered, all you will have to remember when using the service is the telephone number and your code word or pin number that will identify you.

It is the new entrants on the scene, including supermarket banking subsidiaries, life assurers and former building societies, that are causing the biggest stir in direct banking circles. You will find that they will offer better interest rates on your credit balances, something still rare with high street current accounts, and lower cost overdrafts than the conventional banks.

Take Alliance & Leicester, a fairly typical example, where the annual cost of an authorised pounds 200 overdraft, enough to cover most of us who dip into the red at the end of the month as we wait to be paid, would be pounds 24, according to Moneyfacts, a personal finance magazine, compared with a charge of at least pounds 95 with most of the high street banks.

And it pays interest of 2 per cent a year on credit balances up to pounds 5,000. Not a lot, but compare this with the 0.25 per cent paid on Barclays Cheque Plus and Lloyds Gold or the 0.5 per cent paid on the Midland Meridian and NatWest Advantage Gold.

Some are offering generous interest rates on instant deposit accounts. Among some of the best rates currently on offer are those from Egg, the Prudential's new banking subsidiary, Safeway and Standard Life Bank.

Also, some of them, including Standard Life Bank and Legal & General Bank, have ventured into the new flexible mortgages. These can be used virtually as deposit and current accounts, with lower cost overdraft facilities, as well as a means of paying off a home loan.

They all offer cheque guarantee cards that double as cash withdrawal cards, and sometimes as credit cards. As long as you can remember your pin number, you can use any authorised cash machines.

With their ease of use and availability, no wonder more of us are using telephone banking services.