Money Insider: Bank accounts: look at more than just interest rates
Saturday 21 January 2012
If you were going to transfer your current account to a new provider, which bank or building society account would you choose? The results of a recent, inhouse survey reveal that when weighing up their options, most people focus on the interest rate paid on credit balances or the cost of borrowing on an overdraft.
However, there is another element that's worth checking out, namely the charges levied when using your debit card abroad.
Most providers will charge you a foreign transaction fee of 2.75 per cent on each cash withdrawal and purchase made by debit card, with a few banks also charging an additional transaction charge of between £1 and £1.50 per purchase.
To give you an idea of just how expensive this can be, if you use your card to spend £1,500 during your two-week summer break overseas, you'll pay £41.25 in foreign charges and even more with some banks which sting you for transaction fees on top.
Compare this with the interest return you can earn on your current account. Consumers may opt for a Lloyds TSB Classic Plus Account which pays a competitive, 1.5 per cent on balances up to £2,500. But even if you manage to maintain the maximum balance for a whole year, your interest payment after basic rate tax amounts to just £30.
Debit cards that don't levy a charge for overseas transactions are pretty rare, but take a look at the Gold Classic Current Account from Norwich & Peterborough Building Society, where you get free overseas debit card transactions as part of the deal. You only need to pay in a minimum of £500 per month to qualify for the free bank account, which is much less than with many competitors.
Norwich & Peterborough Building Society won "Best Debit Card for Use Abroad" in the 2012 Moneynet Personal Finance Awards.
It's no surprise to learn that the building society has seen debit card use double during the last 12 months as the word spreads and more people recognise the financial benefit of a fee-free payment card.
We can't always blame the banks
Rarely a week passes without a verbal attack on the banks; in fact it seems to be in vogue to rant about excessive bonus payments, overcharging, or poor customer service.
While some of the bad press may be justified, sometimes we need to take a step back and remember that the customer isn't always getting a terrible deal, and in the main has more than enough commonsense to manage his or her affairs without being spoon-fed.
This week produced another slating as Which? called for action on what it deemed were complicated and exorbitant overdraft charges.
Now while the level of charges does appear excessive in some cases, the crux of the matter is that we are talking about unauthorised borrowing – in other words when the customer goes into the red without arrangement or exceeds his or hers agreed overdraft limit.
Whose fault is it if we exceed our limit? As much as some people would like to, I'm not sure we can always blame the banks for that one.
We have access to our account balance 24/7 via internet banking, smart phones, text alerts or the hole in the wall, so the information is readily available and there for us to see.
As adults, surely it's not asking too much for us to keep a close eye on our finances, plus you can always play safe by arranging an overdraft with your bank on an "in case of need'" basis, just to give you a bit of a buffer in case you should mess up your spending calculations.
In most instances, if you exceed your limit and it's pretty much a one -off, if you approach your bank, there's a good chance they'll refund your charges as a gesture of goodwill.
Blaming the banks is easy, but so is keeping your account in order if you make the effort.
Inflation is falling but it's still tough for savers
There was some positive news this week when the Office for National Statistics announced that inflation (CPI) had fallen from 4.8 per cent to 4.2 per cent.
The reduction had been predicted by many City experts and should be followed by further falls over the next few months if all goes to plan.
However, the situation for savers is still dire in that they need an account paying 5.25 per cent gross just to maintain the spending power of their nest egg, a rate that's not achievable in the current market.
While fixed savings rates have increased, we need to see CPI dip below 3 per cent before we return to a situation where savers have a decent choice of products that give them a real return after tax and inflation.
Andrew Hagger – Moneynet.co.uk
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