Banks and building societies are in business in order to make money from their products and services. Which means that there are things that you should look out for when it comes to choosing your bank account.
A number of accounts require a monthly payment, usually in return for other benefits, which are usually offered as a package deal. At times, paying the fee could save you money if it involves a lower overdraft interest rate or other money-saving initiatives, but take note that free banking is still available widely, so do not pay for things that you do not actually need.
Interest rates that are similar to – or even better than – some savings accounts are currently available on current accounts. However, these will normally only apply to a portion of your account balance, and usually up to a set limit, so you may be required to maximise your returns by depositing money above this limit in a separate savings account.
You will also typically be required to pay in a minimum amount every month in order to qualify for the interest rate that was advertised.
Basically, overdrafts, are a form of credit: they are a facility that permits you to overspend, so it should be avoided too as much as possible.
Make sure that you are able to understand the terms of your overdraft facility. There are two kinds of overdraft:
- Arranged overdraft – the bank agrees to an amount by which you can go overdrawn.
- Unarranged overdraft – you either go overdrawn or exceed your arranged overdraft without having an arranged overdraft.
The interest rate that is charged on your arranged overdraft will normally be less than an unarranged one. Rates for unarranged overdrafts are often around 25-30% per year.
Some accounts may also impose a fee every time that you are overdrawn. Other accounts waive interest rates altogether and only require an overdraft fee.
If you do not have an overdraft facility (which is the case for basic bank accounts), it is very important to ensure that you have enough money in the account to satisfy payments, as a fee may be charged if a payment cannot be made.
Almost all bank accounts provide you with a cash card so that you can withdraw money from cash machines. Majority of transactions will be free of charge. However, if you use cash machines in places like amusement arcades, petrol stations, or nightclubs, a fee may likely be charged.
It is worth understanding what type of cash card you will receive and whether it is widely accepted.