MONEY COMMENT
Break It Off With Your Bank

By Cliff D'Arcy
March 3, 2003

A few days ago, we wrote about the hardly improved Banking Code that came into effect on 1 March. One thing that members of the Code have agreed is to make it easier for us to move our current accounts.

This is good news, because problems with transferring direct debits, standing orders, etc. has put off many of us from switching in the past. Now, however, your new bank will contact your old bank for a list of all your regular payments, contact every company and then transfer your payments over automatically.

Like me, you may reckon that your current account offers pretty poor value for money and are keen to track down better-value alternatives. On the other hand, you may be fed up with the consistently poor service offered by the major banks and want to sign up with a more helpful and efficient bank.

Here are the main problems with the widely held current accounts offered by major High Street banks:

• High overdraft interest rates - generally anything from four to eight times the base rate of 3.75%
• Low credit interest rates - 0.1% is the typical rate (that's a measly £1 a year on £1,000!)
• High charges - many banks charge £35 or more for going overdrawn by any amount.

Incidentally, Lloyds TSB (LSE: LLOY)(NYSE: LYG) recently launched an improved bank account but, as you need to pay in £2,000 a month to qualify, this is aimed at the well heeled. Nevertheless, it's easy to find current accounts paying 30 times as much interest as traditional cheque accounts, with lower charges and single-figure overdraft interest rates.

For example, the highest credit interest rates on the High Street are:

• HBOS (LSE: HBOS): 3.04% AER (Halifax and Bank of Scotland, you need to pay in at least £1,000 a month)
• Abbey National (LSE: ANL): 3.04% AER (you need to pay in at least £1,000 a month)
• Nationwide BS: 2.25% AER
• Alliance & Leicester (LSE: AL.): 2.12% AER.

The lowest authorised overdraft rates on the High Street are:

• Alliance & Leicester: 6.9% EAR (you need to pay in at least £500 a month)
• HBOS: 8.9% EAR (you need to pay in at least £1,000 a month)
• Abbey National: 8.7% APR
• Nationwide BS: 9.9% EAR.

The highest credit interest rates online are:

• Cahoot 3.7% AER (Abbey National's online bank) *
• Smile: 3.04% AER (the Co-op's online bank) *
• Intelligent Finance: 3% AER (Halifax's online bank). *

The lowest authorised overdraft rates online are:

• Cahoot: 7% APR *
• Intelligent Finance: 8.39% EAR *
• Smile: 9.9% EAR. *

So, whether you prefer the comfort of a large branch network or the convenience of banking online, you're spoiled for choice. By the way, it's entirely possible that you may find that the companies offering these better terms also combine them with superior service!

* You can apply for these Best Buys at our Online Banking Centre.

Visit our offset mortgage centre for more information on using your current account to pay less mortgage interest.

The writer has a beneficial interest in HBOS shares.