Friday, 2 March 2007

switching current accounts

I’m currently in the process of switching current accounts away from a very low interest bank account (think 0.1%) into a high interest bank account (think >5%). I certainly should have done this years ago, but better late than never.

I opened the original account when I was a student as it had the highest free overdraft facility at the time. I employed the tactic of withdrawing money up to the overdraft limit and depositing that into a high rate savings account. I then used the account as normal. Of course, I spent the overdraft and it took me until the point at which it was about to expire to pay it back. Since then I’ve been earning practically no money on my current account at all.

So why didn’t I change current accounts sooner?

Inertia. I don’t like to run round like a headless chicken looking for the best deal all the time. (I don’t mind doing it periodically.) I wanted to be sure that the account I switched to was likely to stay as a good deal having been burned with high interest savings accounts previously.

I also liked the customer service from the bank I was with. They have lots of branches and good telephone banking.

Fortunately, I’ve had good experiences with my new bank so far. The transfer has gone smoothly. I’m still paranoid that the payments will come out of the wrong account so I’ve left a healthy balance in each to ensure there aren’t any problems. I’d go as far to say as I’d recommend it, but I don’t want to do it again for a few more years.


Golbguru said...

A quick question, doesn't your bank charge you overdraft fees or high interest on overdrawn amount? Almost all banks in US do charge both fees.

plonkee said...

Usually they charge a fee of £30 for going over the overdraft limit but there is an investigation into that by the Office of Fair Trading as it is widely considered to be too high.

Interest rates on authorised overdrafts varies from 5.9% to to 15%. Interest rates on unauthorised overdraft can be up to 30%.

Student accounts (and some other special deals) always have 0% interest overdrafts. Generally the available limits are between £1000 and £2750 depending on the bank. They also extend the limits until 1 year after graduation.

golbguru said...

Thanks for the info. I was expecting it to be much different in the UK...but it appears almost like the system in the US (except the student account part)...so basically, only students can withdraw money from overdrafts and put it in high interest accounts, right? For others, the cost may be too high.

plonkee said...

Yes thats generally right, but you can get current accounts that pay more than 5% on balances less than a few thouand anyway.

In my (limited) experience the biggest difference between UK and US banking is that almost everything in the UK is free. No one pays for cheques or online banking and at the moment very few accounts make a monthly charge.