Cost effective banking

Bank accounts are not just places for us to keep our money until we need it – they can also be expensive if they are not looked after properly. Bank charges, varying interest rates and the prevalence of fraud can all contribute to you losing more of your money than you ought to.

Find an account that rewards you for being in credit

If you are always in credit, look for an account hat pays you interest. For most people, this may only be a few pence or a few pounds, but it’s better than nothing. For a look at the best savings accounts, check out Money Saving Expert or Money Supermarket.

Keeping an eye on overdraft costs

Going overdrawn is where your bank fees really start to add up. First of all, speak to your bank about a regular authorised overdraft limit. If, for example, you have two or three payments that come out of your account on the first of each month, ask for an authorised overdraft that covers these amounts. That way, if your employer pays you late for any reason, you won’t be overly penalised. Banks charge more when your overdraft is unauthorised than when it is authorised.

Your bank will hit you with other fees as well, such as bouncing a cheque or failing to make a direct debit payment. These fees have been as high as £35 per transaction in the past but some banks have dropped them to £12 amid ongoing campaigns and court cases against so-called penalty charges. Even so, while banks are still able to charge these penalties, £12 is a lot of money if you have several bounced transactions in a month.

You could look into basic bank accounts, or the alternative basic account with thinkmoney, for example. Basic bank accounts don’t have an overdraft facility, so you won’t incur any overdraft charges, and you wouldn’t either with the thinkmoney Personal Account –  you’ll know exactly what you’ll pay every month – a single, straightforward fee, with no risk of ‘hidden’ charges for things like bounced payments.

Bear these tips in mind:

  • If you think you are going to exceed your limit, contact your bank in advance. They will try to help but at least you are likely to incur less penalties than if you don’t pre-warn them.
  • Check every bank statement you receive. Better still, regular check your account online. Look for any charges or bounced payments. If something shows up that you didn’t know anything about, contact the bank. In some cases, banks cancel charges if there is a genuine reason to do so – so keep an eye on everything and question it where you can.
  • Question anything on your statement that looks wrong. You may spot a retailer has taken money from your account twice, or you may find a direct debit from a utility company that shouldn’t be taking money from you. Anything incorrect or that looks suspicious, report it to the bank.

Using cash machines

Martin Lewis, the Money Saving Expert, warns against cash machine inflation. This is simply the trend for taking more out of a cash machine than you need to spend. If you need £20 for lunch and some household products, you may take out £40 instead, just in case you need a bit more. This tendency to take out more than is necessary puts more in your pocket that you will then spend. Lewis’ advice is to stick to what you need, and you will keep your unecessary spending down. Also, find cash machines that don’t charge fees. You don’t want to be paying £1.75 just to withdraw £20.

Online banking is cheaper, generally

Many banks now offer discounts for customers who use electronic banking. You may be charged a fee for paying in a cheque over the counter, but nothing for receiving payments electronically into your account, or if you are charged it will be a smaller fee. Making payments by electronic transfer is cheaper too, generally, so set up all your regular payees online so you can pay your bills that way.

Direct debits vs Standing Orders

There’s a lot to be said for direct debits, because you can save a lot of money using them. Paying a fixed amount to your energy supplier each month will no doubt earn you a discount from them, and you get the peace of mind that you are paying regularly rather than having to find the money every three months. However, consider standing orders instead of direct debits, if the former will still earn you the discount. Tell your energy supplier, for example, that you want the direct debit discount but you want to set up a standing order instead.

What’s the difference? The important difference is that with a direct debit you are basically giving a third party the right to take money out of your account – and the amount could be varied by them. With a standing order, you are in total control. You fix the amount per month, and you are making the order to the bank to pay the recipient, who cannot ask the bank to send them the money.

A standing order would stop your energy supplier suddenly putting up prices and taking a larger chunk of money from your account.

Recommended banks

All banks can change their offerings, but at the time of writing, the following banks or building societies are notable for receiving a high rate of customer satisfaction.


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