When it comes to banking most of us take the time to hunt around and find the best savings accounts and mortgages. But we ignore the bit of banking we use the most – our current accounts. You’ve probably been with your current account provider for longer than you’ve been with your partner. But are you happy with your choice?
Over the years I’ve heard many people moan about poor levels of service or high charges. But hardly anyone actually switches. So in this, one of my last MoneyWeek Savers, I’d like to urge you to switch. Banks get away with giving us terrible service and regularly raiding our accounts for ‘fees’, simply because we let them. It’s time to do something about it.
Sure, at one time there seemed little point in switching because most banks were as bad as each other. But there is a lot of competition around today and as a result there is a current account out there for everyone. Here we look at four of the best.
Santander Preferred Credit – Best for perks
If you value a good interest rate and a tasty introductory offer above customer service then the Santander Preferred Credit account is the one for you. Launched yesterday, it offers a 5% interest rate on balances up to £2,500 and a free arranged overdraft for 12 months. You also get £100 cash back if you apply online and use its account transfer service. All that puts the account at the top of the best buy deals. But there are a couple of things to watch out for.
Firstly, after 12 months your in-credit interest rate falls to 1% and your overdraft goes from being free to costing 50p a day to use (capped at £5 a month). So you need to be prepared to jump ship after a year. Secondly, Santander has the worst customer service in the UK according to several surveys. So, if you do go for the perks of this account be aware that you are taking a chance when it comes to customer service.
Halifax Reward Account – Best for fluctuating balances
Most people’s current account balance fluctuates a good deal each month. Your salary arrives and you feel rich. Then as the days go by your balance dwindles as bills and general spending empties your account. This means that most accounts don’t average out at a very high balance. As a result a high interest rate isn’t that relevant.
However Halifax recognises this. So it offers you a £5 reward for paying in £1,000 a month with its Reward Current Account. And you pocket that £5 even if your balance is only £1,000 for a couple of days a month.
This is also a good account for anyone who ever accidently dips into the red for a couple of days. Halifax charges £1 a day for its overdraft service and £5 if you drop into an unauthorised overdraft. That may sound like a lot (and this is certainly not an account for anyone who uses their overdraft regularly) but the good news is it doesn’t charge an unpaid item fee.
Most banks charge as much as £25 for unpaid item fees (charged when a payment leaves your account whilst you are in unauthorised overdraft). So drop into an unauthorised overdraft without noticing and have a couple of payments leave your account and you can quickly find yourself facing a large bill. But with Halifax you’d have to be beyond the red for more than a week before your fees would match other banks.
If you do regularly go beyond your means then make sure you always check what the unpaid item fees at a bank are before you sign up. Banks will make a big deal of their reasonable authorised overdraft rates but most will absolutely clobber you if you go beyond that even for a moment.
First Direct 1st Account – Best for customer service
If you don’t want to be constantly chasing the best current account deal and value customer service over perks then First Direct is the bank for you. This offshoot of HSBC has been topping customer satisfaction surveys for years – it is heartily recommended by consumer watchdog Which? Its 1st Account doesn’t pay any interest on credit balances but you do get an interest free £250 overdraft and £100 for joining the bank.
There are two things to watch out for though. If you pay in less than £1,500 a month, or maintain an average balance of less than £1,500 after the first six months, then you will have to pay a £10 a month fee for the account unless you hold another financial product with the bank. Also be aware that if you request an overdraft increase or drop into an unauthorised overdraft more than once every six months you’ll pay a £25 ‘arrangement fee’. This is similar to an unpaid item fee and can quickly rack up if you aren’t good at managing your money.
ThinkBanking – Best for budgeting?
If you do struggle with your budget and regularly incur fees and charges as a result the ThinkBanking account might be for you. Its Money Manager account takes your budgeting out of your hands. When you set up the account you get a dedicated Money Manager who discusses your budget with you. Between the two of you, you work out how much money you need for bills each month. Then your account is set up with two pots, a salary pot and a cash pot. Each month when you are paid your salary goes into your salary pot and the money needed for bills is ring-fenced. What is left over then goes into your cash pot for you to spend. If you do want to move money from your salary pot to your cash pot you have to discuss it with your money manager first. Anyone who needs a firm hand to get their finances into account should consider this. There is a monthly charge of £14.50 but that’s a lot lower than most unpaid item fees.
However, to save that charge, I’d try setting up two bank accounts myself. Have your salary paid into one then simply work out yourself how much you need for bills and set up a direct debit to move the extra money into the other account. The end result will be similar to ThinkBanking but it won’t cost you £14.50 a month.