Should you switch to direct debit?
Handing over control of your bank account may be unnerving. But it could save you time and money. By Frances Howell
Saturday 19 August 1995
Yet direct debiting is on the increase. A total of 4.6 million new direct debit instructions were signed during this year's spring marketing offensive by the banks, utilities and local councils.
Sixty per cent of UK bill payers now pay an average of four different bills by direct debit. But the banking industry and the companies which offer direct debit billing ( known as originators) still see room for growth.
Their aim is to encourage not only new recruits, but also those who are currently dipping their toes in the water with a mere one or two direct debits, to take the plunge by paying eight to 10 different bills in the same way.
"People clinging to traditional ways of paying are being made to think again by the discounts available," says Michelle Weller of BACS, the UK's automated clearing house for direct debit instructions.
Direct debiting is tightly regulated by a code of practice. One of the consumer safeguards in operation is the indemnity agreement that originators must enter into with their own banks.
This obliges the bank to refund a wrongly billed customer if the originator cannot. Incorrect billing includes not only collecting the wrong amount, but also taking payment at the wrong time, too soon or too late.
Changes in the amount to be debited must be notified to the customer, at least 14 days in advance in the case of monthly direct debits, and direct debits can be cancelled at any time.
Obviously a move to direct debiting involves a loss of flexibility. You cannot stall paying your bills if you are short of funds. But it does save you filling in a payment slip, writing a cheque, finding an envelope, a stamp and finally a post-box (assuming you are not a telephone banking customer). It also saves the originator time and hassle and therefore money.
A wide range, and increasing numbers, of companies are now encouraging their customers to turn to direct debit by passing on some of their own cost savings in the form of discounts.
Although each discount offered is worth only a few pounds, generally transferring your bills to direct debit can save you a few pounds several times over.
Marks and Spencer, which is so customer cost-conscious that it still does not accept credit cards, offers lower annual percentage rates (APRs) for its Chargecard holders who pay by direct debit. If your account balance is less than pounds 1,000 and you are a direct debit payer, your APR will be 25.3 per cent as opposed to the higher 26.8 per cent. Balances over pounds 1,000 are charged at 20.6 per cent APR regardless.
Most of the regional electricity companies are now offering discounts in return for direct debit payments.
For example, London Electricity's discounts for direct debit payers are about 3 per cent off the average annual household bill of pounds 276.59. This adds up to a saving of pounds 9.05 which, although not huge in itself, could at least buy you a bottle of wine. So far it has encouraged nearly 25 per cent of its customers to pay this way.
Big savings are offered by the AA to its members who pay by direct debit. These range from pounds 5 off the annual pounds 41 fee for basic roadside assistance membership, to a pounds 20 discount off the top-of-the-range service, Option 400, which costs pounds 126 if paid by cash or cheque. These discounts have prompted 64.7 per cent of existing customers to pay by direct debit, and more than 70 per cent of new customers do so.
"We can make huge savings on banking costs, administration and renewal of memberships if they are paid by direct debit, so we pass those savings on to the members," says Natalie Proud of the AA.
The RAC offers its largest discount to new members who join its Reflex Europe service, and who pay by continuous credit card authority, which is similar to direct debit but is attached to credit cards rather than bank accounts.
Credit card payers save pounds 31 by paying only pounds 139 instead of the annual pounds 170 fee, whereas direct debit payers have to pay pounds 164, saving only pounds 6. The reason, says the RAC, is that direct debit failures are more frequent than credit card authority failures.
BT gives direct debit paying customers only a slight respite from high line rental charges with a princely pounds 1 off per quarter. If your quarterly bills are as low as pounds 40, this adds up to a 2.5 per cent cut. If your bill is closer to pounds 80 per quarter, this drops to a measly 1.25 per cent.
Despite the row over excessive pay to its chief executive, Cedric Brown, British Gas is hot on the trail of cost savings in payment processing. Its direct debit system, DirectPay, gives subscribing customers a 5 per cent reduction off their bill. The average annual household bill of pounds 311.52 is reduced to pounds 294.81 by direct debit, saving pounds 16.71. Since the launch of DirectPay in November 1994, the number of British Gas customers paying by direct debit has shot from three million to five million, in just over six months.
Cheaper bills are not the only reason. The British Gas scheme enables customers to spread their seesawing bills evenly throughout the year by calculating a regular monthly payment. "Customers prefer to avoid a big winter bill and pay a predictable monthly amount." says Gareth Wynn of British Gas.
For customers who are still averse to setting up an automatic stream of payments, but who pay promptly, British Gas has just introduced OptionPay. Customers paying within 10 days of the date of the bill will have pounds 2 knocked off the total of next quarter's bill unless they use a tiny amount of gas. However, DirectPay provides better value for money.
The sums saved by direct debit payments are not going to make you rich. However, the average household could save pounds 29.76 a year by simply paying telephone, gas and electricity bills by direct debit. (These figures are based on London Electricity's discount structure - check with your local power company for its arrangements.)
If you are really counting pennies, you'll also save on stamps and envelopes. But the real bonus is that you are in effect earning money by not having to worry about getting your bills paid.
When paying bills by direct debit
Check your bank statements regularly to see that the right payment has been made. Non-payment can cause more difficulties than overpayment, particularly in the case of life assurance or insurance policies, which might lapse. If a mistake is made, whoever is at fault pays. If a policy has lapsed because of a bank error and a claim arises, the bank is liable to put the customer in the position he or she would have been in if the policy had been valid.
Follow telephone or fax instructions with a letter. Mistakes can and do happen. Payments continue to be made even though a customer has cancelled the debit instruction. To reduce the risk of payments continuing by mistake, cancel the instruction with the originator, so that it stops demanding payment, as well as with your bank.
Choose payment dates to suit you, for example a few days after your salary is credited to your account.
Be put off claiming refunds in cases of incorrect payment even if you only notice the error six months later. However, errors are much easier to deal with if they are spotted immediately.
27 March 2015 08:30 PM
20 March 2015 07:30 PM
How to make the most of Isas: You can save more money now, the returns are tax-free and the rules are flexible
20 March 2015 07:30 PM
13 March 2015 09:00 PM
13 March 2015 09:00 PM
10 March 2015 09:03 AM
The Financial Conduct Authority found non-compliance in all reviewed firms
11 March 2015 11:38 AM
Pension expert John Lawson talks on why improved longevity is something to plan for carefully
06 March 2015 08:30 PM
02 March 2015 10:50 AM
The DWP and the FCA have joined forces to investigate transaction charges in occupational pension schemes
04 March 2015 03:00 PM
The company was found to have unacceptably long call waiting times
27 February 2015 07:30 PM
27 February 2015 07:30 PM
27 February 2015 12:01 AM
The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter
Debt in Britain: Numbers seeking help on how to cope with mounting bills goes up by more than half in three years
Bargain Hunter: BT improves its mobile reception with 'incredibly competitive' deals
Offset your mortgage and save thousands
Simon Read: 'It went below the radar but you could be eligible for a tax break on your savings'
Women to lose benefits from contracted-out pension scheme
- 1 East 17 bandmember Brian Harvey in 'very desperate situation’
- 2 Germanwings plane crash: Video shows co-pilot Andreas Lubitz learning to fly as a teenager
- 3 Vladimir Putin says Russia will fight for the right of Palestinians to their own state
- 4 Germanwings crash: Captain of doomed plane was only 'on board because he changed job to spend more time with his children'
- 5 Ohio Democrat Teresa Fedor speaks out during abortion debate to reveal she has been raped – and is interrupted by laughter from Republicans
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£32000 - £38000 per annum + benefits: Ashdown Group: A highly successful, inte...
£20000 - £35000 per annum: Recruitment Genius: This multi-award winning foreig...
Day In a Page
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station