FOOL'S EYE VIEW
Britain's Brilliant Bank Accounts

By Cliff D'Arcy
May 27, 2004

Recently, members of the Editorial team here at Fool Towers had a heated debate about cashpoint machines. One of my colleagues argued that he shouldn't have to pay a penny to withdraw his own money, while another argued that 'free' banking was a luxury that only Britons enjoy.

I could see both sides of this argument: on one hand, since free banking was introduced in the Eighties, customers have become very reluctant to pay fees for non-standard transactions. On the other hand, banks make a mint from interest, charges and fines on overdrafts.

However, there is a way that you can have your cake and eat it: you can enjoy free everyday banking, plus earn tons more interest while you're in credit  - and pay far less when you're in the red. All you need to do is to switch to one of the new generation of accounts that are streets ahead of traditional bank accounts.

According to the Consumers' Association, publisher of Which? magazine, seven out of ten Britons bank with Barclays (LSE: BARC), HSBC (LSE: HSBA), Lloyds TSB (LSE: LLOY), or Royal Bank of Scotland (LSE: RBS)/NatWest. Most of the remaining customers bank with Abbey National (LSE: ANL) or HBOS (LSE: HBOS), which includes the Halifax and Bank of Scotland businesses.

The problem is that almost all of these six banking giants' customers are being taken for a ride. Firstly, they're being paid a measly 0.1% interest on credit balances, which comes to a pathetic eighty pence a year interest after 20% tax on a balance of £1,000. The best of the new army of accounts pay up to 48 times as much interest.

Secondly, these customers pay annual interest rates of up to 20% for being overdrawn, rising to over 30%, plus outrageous fines for unauthorised borrowing. Several of the Best Buys charge overdraft interest of under 10% - some even charge no interest until the first anniversary of your switch!

That's why switching makes perfect sense, but many people are frightened to move because they've heard horror stories of lost direct debits, bounced cheques, mislaid wages and so on! However, thanks to a new Banking Code, those problems have practically disappeared.

Under the new Code, your existing bank must provide your new bank with a list of all your regular debits and credits within three working days. What's more, your new account must be up and running within ten days of your application being approved – and if either company slips up, you won't have to pay any charges caused by their mistake.

So, what's stopping you? Take your pick from this beauty parade of bank accounts!

(Please note that these rates apply to NEW customers, so don't just assume that your account pays these rates – check!)

Bank	Account name	Credit interest	Authorised overdraft interest	Available via the Fool?
Lloyds TSB	Classic Plus (1)	Up to 4.75% AER on up to £5,000	0% until 06/06/05	Yes (£30 cashback)
Citibank	Direct Current (2)	4.07% AER	9.9% EAR
Cahoot	Current (3)	3.60% AER	9.3% APR typical
Smile	Current	3.04% AER	9.9% AER	Yes
Halifax/Bank of Scotland	Current (4)	3.04% AER	Free for 120 days then 8.9% AER
Intelligent Finance	Current	2.75% AER	9.80% EAR	Yes
Nationwide BS	FlexAccount (5)	2.75% AER	6.75% EAR	Yes
Abbey	Abbey	2.53% AER	0% for 4 months, then 8.7% APR
Alliance & Leicester	Premier Current (6)	2.12% AER	0% for 12 months on up to £2,500
First Direct	Bank	2.00% AER	9.9% APR	Yes (£25 cashback)

Notes

1. Pay in £2,000+ a month to get 4.75% AER or £1,000+ to get 4.08% AER. 0.1% paid on portion over £5,000. Overdraft rate after 06/06/05 is 17.3% AER. Must log on to Internet banking three times every three months.
2. Minimum annual income of £15,000. No minimum monthly funding required.
3. Rates from 03/06/04.
4. Funding of £1,000 per month required.
5. Funding of £1,000 per month required. Rates from 01/06/04.
6. Funding of £500 per month required. After 12 months, overdraft rate reverts to 6.9% AER.

Where next? Visit our Online Banking centre and switch bank accounts today!

Cliff owns shares in HBOS.