The Rate Tart

TheRateTart Current Account Guide

Contents

1. Introduction
2. What features and benefits should I look for in a current account?
   • Interest Rates
   • Overdraft Facilities
   • Flexibility of Operation
     • Online bank accounts
       • Online Account Security
     • Telephone banking
   • Customer Service
   • Financial History
3. Tips from TheRateTart
   • Incredible Shrinking Interest Rates
   • Poor Value Incentives on Premium Accounts
   • Student Account Freebies
   • High Bank Charges
   • Online Banking Security

Introduction

Current accounts offer a secure place to keep your money, whilst retaining ease of access for day to day use. They also offer a range of features and services that make managing your money easier (direct debits, standing orders, overdraft facilities etc). You might be surprised to learn that many current accounts are unprofitable for the banks to operate. But what they do provide is a gold-mine of information on your financial profile and habits. This makes it easier to target you for sales of other, more profitable products. That's why most current account stipulate that you must pay your salary into them each month. Use TheRateTart guide to current accounts to find the account that works for you, not for your bank.

It's much easier than it used to be to switch current accounts. Many banks now offer a free service to help new customers switch. If your bank doesn't, check whether they subscribe to the British Banker's association Banking Code (most banks do). This states that banks must hand over all information about Direct Debits and Standing Orders within three working days. If find that your old bank drags their feet, mentioning the Banking Code should encourage them to get a move on.

What features and benefits should I look for in a current account?

There are a number of current account categories (student account, overdraft accounts, premium accounts etc). But whatever the Category, the devil is in the detailed terms and conditions. Think up front about what you need and then check the features and benefits carefully before making a commitment. Some of the main criteria to consider are listed below:

Interest Rates. If you are generally in credit by a significant amount each month it is worth considering what rate of interest you are getting on your current account. Some only pay 0.1%, but there are accounts available with significantly higher rates (although usually with an upper balance limit above which a lower rate is paid).

Overdraft Facilities. The best approach is to manage your spend to your budget to avoid going overdrawn. In the real world the ideal is not always possible and 'life happens'. Be realistic and if you are likely to go overdrawn on a regular basis, look at who has the lowest overdraft interest charges. If you are likely to go overdrawn only occasionally, it is still a good approach to set up an authorised overdraft to act as a buffer zone; charges for unauthorised overdrafts can be truly spectacular.

Flexibility of Operation. Having a bank account that is only accessible via a high street branch from 9am to 5pm may not work well for you. If this is the case there are two options:

Online bank accounts offer some of the best value in the UK marketplace. This isn't because the banks are filled with geeks who are desperate to show everyone how great the internet is. It's down to money. The cost of servicing a customer who banks online is a small fraction of the costs associated with setting up, staffing and maintaining a high street branch network. The good news is, these cost savings are in part passed onto the customer in the form of higher credit interest rates and lower overdraft rates. Levels of sophistication vary, but are generally increasing. A good online bank will let you do most of the transactions that are available in the branch or over the phone. For example, setting up, amending and cancelling standing orders or direct debits, transferring funds between accounts etc.

Online Account Security is a cause of concern for many customers. On the other hand this is a much bigger concern for the banks themselves. There are two reasons for this;

• The bank rather than the customer is responsible for losses due to security failures that are caused by short-comings of the online banking hardware or software. The customer is responsible for taking common sense precautions to prevent their account from being accessed illegally. For example, never reveal your ID or password to anyone, don't walk away from your pc whilst logged in etc.
• For many banks the online channel is an increasing source of business. Serious breaches in security damage reputations which in turn hits business. This means they have a strong incentive to keep their systems as secure as possible.

Telephone banking. If you need flexible hours, but are not comfortable with online banking, consider a provider who specialises in telephone banking (they are more likely to have call centres with well trained staff). These accounts allow you to manage your account remotely and the operating hours are usually more flexible than those of a high street branch. In fact a few operate 24x7.

Customer Service. Some banks are better at this than others. Whilst it is impossible to get a definite view on this before taking the plunge, there is some research that can be done. Is their website well laid out and easy to use? If you have made an enquiry about their current account, what was the response like? Do you have friends, family or colleagues who bank with them? You may also want to check out some of the consumer watchdogs such as Which to see if there is any information (good or bad) on particular providers. If you're finding it hard to locate their contact details, this may be your clue that they are not too hot on customer service.

Financial History. If you have no banking history or if you have a poor credit rating it can be hard to get accepted for a current account. Some banks offer basic accounts with limited facilities. If this is the only option available to you, it may still be worth going for. Over time a well managed basic bank account will contribute towards a healthy credit rating and allow you to move up the ladder onto a better offer.

Tips from TheRateTart

This is not an exhaustive list, but here are some tips from TheRateTart to bear in mind when applying for current accounts.

Incredible Shrinking Interest Rates. Some current accounts offer market leading interest rates to lure in new customers. However these deals are not always what they seem. Some have an upper limit on the amount attracting the headline rate. Balance above that ceiling may attract a rate as low as 0.1%. Alternatively the headline rate may only apply for a limited period of time after which considerable reductions are possible. Check to see if the provider is making any commitment in terms of ongoing rate.

Poor Value Incentives on Premium Accounts. Many banks offer premium accounts to high earners. These usually attract a monthly charge in return for additional benefits, such as increased overdraft facility, free travel insurance, mobile phone insurance etc. Whilst it can be flattering to be offered one of these, think carefully about whether you are really getting value for money. If the bank values you enough to offer you a premium account, chances are they will give you a decent overdraft facility on your existing account. Is that travel insurance a match to your needs, and does it cover your family or just the account holder? Does your home and contents insurance already cover your mobile phone (many policies do)?

Student Account Freebies. Every year banks offer bigger and better freebies to students. The reason - they are counting on students (like everyone else) never switching their current account. When choosing a student current account the most important thing to consider is the generosity of the overdraft facility (interest rate and duration of that rate). You're almost certainly going to be using it. Pick the right one and you could save far more than the cost of the freebies being offered up front. Many banks also offer graduate accounts with extra benefits that apply for the first few years after graduation. So make sure you get into TheRateTart habit and see if you will be better off switching to a new provider after graduation. By registering with TheRateTart you can set up free email alerts to remind you when it's time to switch.

High Bank Charges. Banks levy hefty charges for anything that goes outside your account terms and conditions (unauthorised overdrafts, bounced cheques etc). The amounts charged should reflect the cost to the banks, but more and more customers are challenging whether this is the case. Pay close attention to the terms and conditions to make sure you don't get caught out.

Online Banking Security. Anti Virus and Firewall software is increasingly being bundled with both PC hardware and ISP packages. However to be effective this software must be kept up to date with regular downloads and updates. Some financial services organisations are demanding that users keep these packages up to date or risk losing compensation resulting from online fraud. It is not clear how enforceable such clauses are. However it is worth checking whether your broker has included such demands in their Terms and Conditions.

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