Money Insider: Is it time for a change of current account?
Saturday 28 May 2011
While many of us will switch our credit card balance at the drop of a hat and shop around for a new mortgage deal each time our fixed rate expires, when it comes down to moving our bank account it's a different matter.
There are many current accounts to choose from. Some come with enticing rates of credit interest, with others offering a more competitive deal for those who sometimes dip into the red.
Despite the best efforts of the marketing guys at the banks and building societies, large numbers of us remain loyal to the current account that we opened when we left university or received our first pay cheque.
So what's the reason for this misguided loyalty? Well, it seems that the main hurdles that providers have to overcome are consumer apathy and the perceived hassle involved in transferring your account to somewhere new.
When you realise that most of the standard accounts offered by the big high street players are paying a miserly 0.1 per cent interest on credit balances and charging close to 30 per cent for an unauthorised overdraft, perhaps a quick maths lesson may give you more of an incentive to "ditch and switch".
If you keep an average of £2,000 credit in your current account, at 0.1 per cent you'll receive a paltry £1.60 (after 20 per cent tax) in interest for the entire year, yet if you currently held a similar balance with the Preferred account from Santander you'd receive £80 in interest plus £100 for switching – starting to get interested now?
Another account worth a look is the Reward Current account from Halifax which pays you £5 every month (yes £60 per year) as long as you pay in at least £1,000 per month.
If this has whetted your appetite and given you some inspiration to go out and find a more suitable current account, there are a few things you need to take into consideration:
* You may be required to fund your account with a minimum amount each month; this typically varies from £500 up to £1,500 per month depending on the account you opt for.
* Beware of packaged accounts where eager bank staff will try to persuade you to opt for one of their accounts with add-ons such as mobile phone insurance, car breakdown cover or travel insurance. This may sound an attractive proposition until you realise that you'll have to shell out a monthly fee of anything from £6.50 to £25 for the privilege, and that you could potentially buy the specific cover you actually need cheaper elsewhere.
* Find out what the charges are for an authorised overdraft and how much you would be stung if you accidentally went over your limit.
* An account that offers a high rate of credit interest will often turn out to prove expensive for borrowing and vice versa, so opt for an account that fits your account usage.
* While credit interest of 5 per cent sounds appealing, don't forget to check the small print as in many cases these attractive interest rates will only apply to the first £1,000 or £2,500 of your balance.
* It's possible to receive financial incentives for transferring your current account, with First Direct and Santander offering a cash sum of £100 when you move across to them.
Remember if you can't be bothered to switch, it will be the banks profits that continue to benefit, and that'll be at your expense!
5.29% mortgage for Santander first-time buyers
This week Santander offered new hope to first-time buyers with its latest low rate on home loans up to 90 per cent loan to value.
To qualify for this new exclusive first-time buyer rate you need to hold a First Home Saver account, which pays 5 per cent interest on your savings balance as long as you credit your account with a payment of between £100 and £300 every month.
The account can be opened with a maximum lump sum of £5,000, and is available to non home owners aged between 16 and 35.
The current mortgage offer to Santander First Home Saver customers looks an attractive package, with a very competitive rate of 5.29 per cent and £495 fee, with a free basic valuation and £250 cashback.
It's good to see lenders offering incentives to encourage people to save hard for a deposit on their first home, with Yorkshire Bank and Nationwide Building Society launching similar schemes in recent weeks.
For those old enough to remember, it's a throwback to the mortgage process of the 1980s and 1990s, where you had to demonstrate to your lender that you were capable of saving a deposit, thus giving the lender the confidence that you would be able to afford your mortgage repayments.
Andrew Hagger: Moneynet.co.uk
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