FOOL SCHOOL
Choosing The Right Bank Account

July 14, 2004

Everyone has different criteria when looking for banking services but, to give you an idea, here are some that you might want to consider.

1. Interest Rates

What rate of interest is paid on credit balances in your current account? This is important if you're normally in credit from month to month, so try to estimate your typical average balance. Most banks will allow you to move money from your current account to a high-rate savings account whenever you like - this is particularly easy to do online. With some, you can even request that any funds over a certain amount are automatically transferred ("swept") into another account to earn more interest.

2. Charges

It's obviously not very Foolish but, sometimes, overdrafts are necessary. If you think you'll need to go into the red fairly often, you should consider the charges for being overdrawn. And if you occasionally find yourself facing a really dire month, check the rates for unauthorised overdrafts, as these can be truly astronomical. (Best to phone them to ask for an increase in your overdraft facility in this situation, eh?)

3. Hours of Operation

Are you a night owl? Most online banks claim to operate 24 hours a day, 365 days a year. However, they generally go off-line in the dead of the night to do upgrades and things. Some actually close from midnight to 6am. If this is when you're likely to want to do your banking, then these won't be for you.

4. Statements

Do you look at your bank statements? Would you, if they were available online? Some banks offer online statements going back for several months, while others only offer the current month's transactions. Think about which you'd prefer.

5. Paying Bills

Your telephone bill lands on your doormat, but it's not due to be paid for two weeks. Will you remember to pay it on time, or would you rather set up a payment to be made in two weeks' time? Most - but not all - online banks offer a "bill payment" facility. However, if you tend to pay all your bills by direct debit, you don't need to worry about this.

6. Standing Orders and Direct Debits

Do you want to be able to set up, amend and cancel standing orders online? Not all of the online banks allow you to do this. With direct debits, bear in mind that they have to be set up with the company you're paying so, although you can cancel them by contacting your bank, you also need to contact the payee companies to notify them of alternative arrangements.

7. Efficiency and Service

Do you remember the "Chance" card in Monopoly that says "Bank error in your favour, collect £200"? Unfortunately, the reality is rather different! When a bank error favours you, the bank invariably spots it and takes the money back, so it's clearly important that your bank is efficient enough not to make mistakes. Unfortunately, it's difficult to know who is good and who is bad in this respect, but you can get a rough idea of how efficient they are by contacting them. Did you get polite and prompt responses? Are the features on their website easily accessible? Is the website fast or slow? If service is important to you, make this one of your top criteria.

8. Aggregate/Wrap Accounts

A handful of banks operate an account aggregator service which enables you to gather all of your various online accounts on to a single web page. This is still a fairly new concept but if you want to log on with just one account name and password to see the details of all your bank accounts, pensions, credit cards, ISAs, mortgages, savings and your share portfolio - all in one place - it's now a possibility. You can even hold details of your supermarket reward cards too.

9. Student Accounts

Student accounts are usually far more generous than ordinary current accounts, so if you're about to toddle off to university, go for one of these. Although it's handy to have a branch on or near your campus, thanks to telephone and internet banking, it's no longer a necessity (so long as there's at least one local cashpoint you can use). Look for an account with no or low interest on overdrafts (0% on the first £1,000 is fairly common for year one), plus free banking and low cost student loans. Watch out for the gimmicks and inducements for new customers and focus instead on what counts: the interest rates and borrowing limits.

Find out more in our Banking Centre.