How to beat the banks

This article is taken from Merryn Somerset Webb's free weekly personal finance email, Money Sense. Click here to sign up now: Money Sense

Britain's big banks have rarely been less popular than they are today. They've been bashed by pretty much every paper and even the Chancellor himself this week for attempting to keep the proceeds of December's rate rise to themselves.

According to figures from wealth management company Chase de Vere, 14 lenders have not reduced their Standard Variable Rates (SVRs the rate off which they price their other mortgages) by the full 0.25% cut in base interest rates. Indeed, it's been five weeks since the Bank of England cut rates yet lenders from Intelligent Finance to Skipton Building Society not only haven't cut their SVRs by the full amount, they haven't cut them at all!

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At the same time 18 banks and building societies have had a go from the other side: they've cut the interest rates they pay on one or more of their savings accounts by more than the base rate cut. Moneyfacts.co.uk points out that Alliance & Leicester have cut their rates not by 0.25% but by up to 0.5% while lots of other banks, including Natwest and the Royal Bank of Scotland have cut rates by up to 0.35%. Irritating isn't it?

How the big banks overcharge you by £400 a year

Equally frustrating is the way our big banks are persisting in racheting up their everyday charges. They've been pilloried for it all over the press with folk band Oystar, egged on by Martin Lewis of moneysavingexpert.com, going so far as to release a critical single called I fought the Lloyds and won about the battle to reclaim charges (it is already in the top 20) and splashing news of its progress all over the place. Yet even now even as a case brought by the Office of Fair Trading to establish the legality of bank charges is on the verge of hitting the High Court they are still at it.

According to figures from Moneyfacts.co.uk, go overdrawn at one of the high street banks without arranging it first and it could end up costing you £160 in a matter of days and that's not including the fact that you'll be charged interest at something like 17-18% on the lot. Worse, that's just the start of the many ways your bank can, and will, fleece you a survey last year showed that bank small print includes a staggering 110 fees and charges for what most of us think are basic financial transactions. However of all the things that infuriate me, the biggest is the fact that so few banks pay proper rates of interest on current accounts the average is around 1%.

This matters. If it isn't earning interest your money loses its purchasing power fast: if inflation is at 4% (i.e. average prices are rising at 4%) you need to make 4% on your money (after tax) just to be able to buy the same amount of stuff with it at the end of the year as at the beginning. If you aren't you are effectively losing money every day.

Worse however is the fact that the banks use the fact that you have a current account with them to sell you their other rubbish: once they have you handing your monthly salary over to them and you look like you might be the kind of person who tends to pay back their borrowing, you're at the mercy of their hordes of salesmen (they call them advisers) and their offers of endless loans, credit cards, unnecessarily complicated investment products' and mortgages. Add up all the sins of the average big bank, says Which? and the result is nasty: they effectively overcharge customers by £400 a year each thanks to their range of rotten saving and loan products and their high fee structures.

How not to get ripped off

The kneejerk reaction to all this is to call for more regulation. But there is an easier way to deal with our bad banks vigilance. You don't have to keep your savings with Alliance and Leicester nor your mortgage with the Scottish Building Society (which passed on a measly 0.15% to mortgage holders rather than the full 0.25%). And there is rarely any need to run up an unauthorised overdraft: at the price they tend to end up coming in at you are better off using a credit card if you are out of money. And of course it really isn't that hard to change your current account to one that will treat you reasonably well: once you have made a request to switch, your old bank has three days to provide your new bank with all your details who should then set everything up.

The banking market should be very competitive, particularly right now when they are all having to fight for customers in a tough market fewer people are looking to borrow less money than they were last year. There are plenty of players trying to make money out of selling us the same products and the only reason they so often get away with fleecing us on our borrowings and our savings at the same time is because we can't be bothered to do the minimal amount of work required to stop them doing so. Note that despite the fact that they offer some of the worst accounts on the market 70% of us still bank with the UK's four big high street banks Lloyds, Natwest, HSBC and Barclays. It's pathetic.

So why do we keep letting it happen? Why don't we all just resolve not to be ripped off any more but instead to bank with organisations that treat us fairly and and this is the key transparently. Putting this into action should be easy. First find the current account that suits you best (First Direct is good), move your money into it and promise yourself you will never exceed your overdraft limit.

Next check your savings accounts. Earning less than 6%? Then move your money somewhere better. Click here for the current best buys: UK savings accounts best buys (but be aware that you will only get £35,000 back if your bank goes bust so you might want to click here to check the risk levels of the high payers, which you can find at the end of this article: How to give yourself a money makeover.

Then turn to your mortgage. Paying more than 6%? Then have a look to see if there are better options out there and if there are and there should be move. Click here for best buys: Best buy mortgages.

If we all do this, all double check our situation regularly, and all shift our finances around when we need to, it shouldn't be too long before the banks start behaving a little better, court case or no court case. They'll have to or they will find themselves entirely without customers we'll all have moved on.

P.S. My book, Love is Not Enough: The Smart Woman's Guide to Money, is now out in paperback. Get it from Amazon for a mere £5.39. Click here to buy: https://www.amazon.co.uk/gp/product/0007235194

For more tips and advice, visit the personal finance pages of the MoneyWeek website: Personal Finance or click here to compare products including saving accounts, personal loans and more: Best deals