Bank Accounts - Things to Watch Out For
Banks and building societies are in business to make money, and they do this from the bank accounts they offer in a number of ways. Our guides on bank accounts and basic bank accounts give you lowdown on how the accounts work. But here are the things to look out for when choosing your bank account.
Monthly Fee
Some accounts require a monthly payment, usually in return for some other benefits. Banks will advertise the benefits, but not necessarily the fee. Free banking is still widely available so don't pay for things you don't actually need. Sometimes paying the fee could save you money if it means a lower overdraft interest rate or other money saving elsewhere.
Interest
Interest
rates comparable to savings plans are now available for current accounts.
However this is only for the first portion of your account balance so you
should maximise your returns by placing any money above this amount in a
separate savings account, such as Cash ISA.
You'll also be likely to need to pay in a minimum amount each month to qualify for the interest rate advertised.
Overdrafts
- Overdrafts are basically a facility to let you overspend, so should be avoided if possible.
- Make
sure you understand the terms of your overdraft facility. There are two
sorts of overdraft:
- Approved overdraft - where the bank agrees an amount by which you can go overdrawn.
- Unapproved overdraft - where you either exceed your approved overdraft or go overdrawn without having an approved overdraft.
- The interest rate charged on your approved overdraft will be less than an unapproved one. Rates for unapproved overdrafts are often between 25 and 30%.
- You may also be charged a fee for the time you are in overdraft.
- Where you don't have an overdraft facility (which will be the case for basic bank accounts) its just as important to make sure you have enough money in the account to meet payments, as you may be charged by the bank if a payment cannot be made.
Cash Withdrawals
- Just about all bank accounts give you a cash card so you can get money out of cash machines. Most transactions will be free of charge, but if you use cash machines in places like petrol stations, amusement arcades or nightclubs you are likely to get charged.
- It's worth understanding what type of cash card you'll get, and whether it is widely accepted, eg at Link machines.
What to do Next
Now you're aware of all the pitfalls, take a look at
the latest bank account best buys to check the latest rates and deals on
offer
