FOOL'S EYE VIEW
The Perfect Bank Account

By Cliff D'Arcy
August 12, 2004

According to Relate, the marriage counselling service, the biggest cause of rows in relationships is arguing about money. This doesn't surprise me one bit!

For the sake of argument, let's assume that, say, 1 in 5 adults is 'good with money'. Random chance would suggest that only 1 in 25 couples would consist of two people who are both 'good with money'. Unfortunately, in 16 out of 25 couples (64%), both partners would be 'bad with money'!

What's more, almost all of us frequently criticise our banks. According to this article, nine out of ten of us believe that banks and building societies make excessive profits. In addition, we're unhappy with poor savings rates, long cheque-clearing times, call centres, poor customer service and so on.

So, perhaps a perfect bank account would go some way to improving our finances and reducing the frequency and severity of financial rows? Let's try to come up with some criteria to define the ideal current account and then we'll look around for the closest matches...

By the way, let me make one thing crystal clear: just because you have a bank account with one of the better banks listed below, it doesn't mean that you have that bank's best account. You're far more likely to have a crummy, obsolete account that pays 0.1% a year on credit balances and charges 25% a year on overdrafts! All the Best Buys are listed in the table at the end.

1. Make it worth my while to switch

If I'm unhappy with the products or services that my bank offers, I want to feel that its rivals would really value my custom. In other words, if you want to lure me away from my existing bank, make it attractive for me to switch!

Although switching accounts has become far easier in recent years, thanks to an improved Banking Code, the paperwork is still a hassle. Nevertheless, in 2002, over 750,000 people switched banks for a better deal - and nineteen out of twenty people that switched accounts in 2003 (95%) found it very straightforward. Not bad, eh?

These banks pay upfront bungs to encourage you to jump ship: Alliance & Leicester (£30 for online applications), First Direct (£25 - online or by phone) and Lloyds TSB (£30 - online).

2. Pay me handsomely when I'm in credit

Most of us are in credit at some point during each month, even if it's only for payday! However, if you're sensible (or 'Foolish with a capital F', as we say), you'll stay in the black and out of the red all of time. In other words, make sure that you're always in credit.

Ideally, I'd like an account that pays me at least the Bank of England's base rate on my credit balance (currently 4.75%), with a guarantee that the in-credit interest rate won't fall below the base rate. No account does this, but these five accounts pay high rates of interest on credit balances:

Credit interest rates
Bank	% AER (annual equivalent rate)
Alliance & Leicester	5.50
Lloyds TSB	5.00
Cahoot	4.10
Smile	3.04
HBOS (Halifax and Bank of Scotland)	3.04

3. Don't fleece me when I'm in the red

There are few things more annoying than going slightly overdrawn and being hammered by bank charges. My ideal bank account would charge a low rate of interest on overdrafts, with no arrangement fees for agreed borrowing, and no massive penalties for unauthorised overdrafts.

With the best accounts, fee-free (even interest-free) overdraft 'buffers' of up to £500 are commonplace. For example, First Direct and Smile offer fee-free £500 limits. Here are five accounts with low authorised overdraft rates:

Overdraft interest rates
Bank	Interest rate
Alliance & Leicester	0% for 12 months on up to £2,500, then 6.9% AER
Lloyds TSB	0% until 30 August 2005, then 17.9% AER
Nationwide BS	6.75% AER
Abbey	8.7% APR (0% on transferred accounts for four months)
HBOS	8.9% AER (0% on transferred accounts for 120 days on up to £2,500)

4. Don't hit me with massive fines for little mistakes

One MP recently accused banks of exploiting customers by imposing fines for short-term unauthorised borrowing. As well as annual interest rates of up to 34%, most banks levy stiff fines for unauthorised overdrafts and bounced payments by cheque, standing order and direct debit. One simple slip-up could mean £100 of fines, on top of extortionate rates of interest. These penalties are far greater than the banks' true costs for dealing with minor offences.

Sadly, most accounts still penalise unauthorised borrowing, so stay alert. If you're going to slip over your limit, call your bank as soon as possible!

5. Give me great customer service

Unless you opt for private banking, which is only an option for wealthier customers, you can no longer expect a first-class service from high-street banks. In fact, readers of Which? magazine gave a giant thumbs-down to the big high-street banks' service.

Of the Big Four (Barclays, HSBC, Lloyds TSB and NatWest), only HSBC customers were happy with the service they received. The best service on the high street came from Nationwide BS, with the highest overall ratings awarded to online bank Smile and telephone/online bank First Direct.

6. Don't bother me with junk mail

Banks see current accounts as loss leaders and aim to make serious bucks by selling you other products, including credit cards, mortgages, personal loans and insurance. If you don't want to be bombarded with countless offers for credit and so on, read this article on how to ward off the wave of junk mail.

7. Compensate me if you foul up

Banks handle billions of transactions every year, so mistakes are bound to happen. However, what's really frustrating is when your bank admits to making a cock up, but doesn't automatically offer you compensation. Although banks are obliged to compensate you if they make any mistakes when switching accounts, very few will automatically pay up for everyday blunders.

Even if you've not lost out financially, you should be reimbursed for the time you spend sorting out problems. Learn more in How To Complain... And Win.

8. Help me to quit queuing

We British have a weird obsession with queuing and, on the whole, we can't stand it (groan!). Indeed, three out of seven of us (42%) complain about queues at bank counters or cashpoints. One way to get around this hassle is to use Internet banking, where you can organise almost all your payments online.

I haven't used my chequebook in years, as I pay bills by Direct Debit to get discounts, or transfer funds online via BACS. I enjoy the user-friendliness of banking online, so it's a rare day that I visit a bank branch - other than to withdraw cash or make a deposit using an automated teller machine (ATM).

9. Give me online access and a large branch network

One in three Internet users now makes use of online banking, largely because it's easy and convenient - imagine having a branch in your home or workplace. However, many customers still feel want access to a big branch network - even though the big banks have been closing branches left, right and centre in recent years. Here are the biggest branch networks:

Big branch networks
Bank	Number of branches
Lloyds TSB	2,000
Barclays	2,000
HSBC	1,700
NatWest	1,600
HBOS	1,100
Abbey	740
Nationwide BS	700

10. Get rid of sneaky clauses and catches

In an ideal world, banks would stop confusing their customers and hiding behind the small print. Realistically, that isn't going to happen, so it's important to read the terms and conditions of your favoured account before switching. Make sure that the account you've chosen closely meets your everyday banking needs.

11. Can the call centres

To cut their costs, banks have closed thousands of branches in recent years and replaced them with massive call centres, many of which are overseas. This has driven many customers to despair, especially people in rural communities who face a long drive to their local branch.

Many customers complain about long waiting times and poor service from call centres. However, conditions for call-centre staff are, in general, pretty tough. In some ways, they could be considered modern white-collar sweatshops. So, have a little sympathy for the stressed customer adviser who has been dealing with angry customers all day!

Note that almost every banking survey I've come across has confirmed that First Direct and Smile have the best call-centre service.

Finally, based on the comments above, here is a list of top accounts. Alas, we didn't find the perfect current account, but at least one of these accounts should be right up your street. Just watch out for those pesky terms and conditions buried away in the small print, especially interest rates linked to how much you pay in each month...

Britain's best bank accounts
Bank	Account name	Apply via the Fool
Abbey National	Abbey
Alliance & Leicester	Premier Plus	Yes
Cahoot	Current	Yes
Citibank	Direct
First Direct	Bank	Yes
HBOS	Current
Intelligent Finance	Current
Lloyds TSB	Classic Plus	Yes
Nationwide BS	FlexAccount
Smile	Current	Yes

Cliff owns shares in HBOS, parent company of Halifax and Bank of Scotland.