Why should I switch my account?
People often don’t think about changing their current account, but by shopping around, just as you would for a credit card or car insurance, you could get a much better deal. Are you finding you pay a lot in overdraft fees, or do you have a balance just sitting there and not earning any interest? Loyalty often doesn’t pay!
What is a basic bank account?
Basic bank accounts are simple, ‘no-frills’ bank accounts that are normally offered to people on low incomes or with poor credit ratings. They’re similar to conventional current accounts and customers are given a cash card which enables them to take out money from an ATM. Customers may also be offered a debit card.
However, basic bank accounts never include cheque books and it’s impossible for a customer to go overdrawn. If there aren’t sufficient funds in an account to pay for a transaction, the transaction won’t go through.
What is a packaged account?
A packaged account is a bank account that comes with extra features. These may include mobile phone insurance, breakdown cover or travel insurance, and will usually charge a monthly fee.
Whether you need a packaged account depends on how much use you’ll get out of what’s included. If you drive then you might find one that includes roadside assistance useful, but on the other hand if you won’t be going on holiday this year, you may not benefit from free travel insurance. If you would have bought the products anyway, then you may save money, despite the monthly fee. It’s worth thinking carefully about whether you need the benefits on offer.
What is an overdraft account?
If you ever need just a little more money (or think you ever may) to tide you over until payday, an overdraft account could be for you. An overdraft occurs when money is withdrawn from an account and the available balance goes below zero- known as being ‘overdrawn’. Some banks will allow you to set up an ‘authorised overdraft’, which may charge you an agreed interest rate or fee, or nothing at all. Think of an overdraft as a kind of ‘buffer’, so you can avoid big unauthorised overdraft fees. It’s important to remember though that overdraft accounts should only be used if you know you’ll be able to replace the money. If you need more money for a big purchase, you may be better off with a credit card or a loan.
Credit rate (AER)
AER stands for Annual Equivalent Rate. This is the interest rate you’ll receive on any money you have in your current account. This takes compound interest into account – in other words, the interest you earn on your interest.
Interest Free Buffer
Some current accounts allow you to go overdrawn by a certain amount without charging interest. This may be a permanent feature or an introductory offer.
Banks are now obliged to give an example of how a product works if an advertisement quotes any interest rate or any fees that affect the cost of credit.
The example should include the annual percentage rate (APR) for the product. The bank isn’t obliged to offer the same interest rate to all customers but it should expect that at least 51% of users will be offered that rate for the product.
This is the APR interest rate that should be offered to at least 51% of customers.