Switching accounts is a current issue

Moving your current account to another bank often results in savings, but there is a lack of transparency in what is on offer, writes FIONA REDDAN

FOR ANYONE who has thought about switching their bank account, only to find themselves trudging through information about competing products for weeks on end trying to decipher which one is the best deal, the findings of a recent European survey won’t come as a surprise.

The survey, commissioned by the European Commission, found that Irish current accounts are less transparent than the European average, with more complex pricing structures. So opaque are Irish accounts, in fact, that the experts compiling the report had to make additional contact with three of the four Irish banks that took part in the survey for clarification.

The Irish Financial Services Regulatory Authority’s cost comparison of current account providers is welcome (see www.itsyourmoney.ie). But the fact that it features 12 notes clarifying its comparison of seven banks serves to validate the survey’s findings.

Given the difficulty in accurately comparing accounts, switching rates remain low in Ireland, with a 2008 survey revealing that only 7 per cent of consumers had switched their current account in the previous two years, lower than European average.

Nevertheless, with a wide variety of current accounts on the market, it may be worthwhile taking the time to find the best deal for you, as the most recent survey found a higher degree of price competition among Irish banks than the EU norm.

It also found that Ireland has one of the highest percentages of consumers who found a cheaper provider when switching.

So the case for switching is clear, but where should you start?

Current account fees

The first thing to examine is how much you are being charged for servicing your current account, as one of the main findings of the commission’s survey is that Irish banks impose high account charges.

Some of the more expensive accounts are offered by National Irish Bank, which charges a fixed rate of €18.75 every three months on its Easy Plus package, and €31.25 on its Prestige account. Keeping such an account could therefore add up to €125 a year, although these accounts do not impose day-to-day transaction charges.

AIB, on the other hand, has a quarterly fee of €4.50 on its current accounts, but it imposes additional transaction charges such as €0.20 per debit card/ATM transaction, and €0.20 for a direct debt or standing order.

Bank of Ireland has a different pricing mechanism, charging €11.40 per quarter for up to 90 transactions on its Flat Fee account, with transactions in excess of this charged at €0.28 each.

Most of the other current accounts in the Irish market do not charge a service fee, so if you notice sizeable deductions from your account on a quarterly basis, it may be time to switch.

Free banking

To avoid the aforementioned fees, you need to go for a “free” option, such as National Irish Bank’s Easy Customer Package, or meet certain requirements set out by the bank.

For example, to avoid AIB’s quarterly charges, you need to do certain things each quarter, including making a purchase using your AIB debit card and using AIB phone and internet banking to make a debit transaction.

At Bank of Ireland, you can qualify for free account transaction fees by maintaining a minimum credit balance of €500 in your account for the entire quarter, or by making at least three payments from your current account using 365 Phone, 365 Online or a combination of 365 Phone and 365 Online during the relevant fee quarter.

Halifax, Ulster Bank, Permanent TSB, National Irish Bank and Postbank all offer free day-to-day banking services.

However, while many banks pitch free-banking offers, there really is no such thing as free banking and banks will instead seek to make money by imposing stealth charges.

Additional charges

While you may get free day-to-day banking, customers can still face a barrage of fees for other services, which, again, can be difficult to compare.

For example, if a standing order is not paid due to insufficient funds in the account, banks will levy a charge. In general, the charge is €10, although Bank of Ireland and Ulster Bank charge €12.70.

A bounced cheque or returned direct debit will set you back €12.70 at Bank of Ireland or €10 at Halifax.

If you need a duplicate bank statement, you can expect to pay €5 at Halifax, €4 per page at National Irish Bank and €2.54 per page at AIB.

While some institutions, such as Ulster Bank, do not charge for replacing a lost or stolen card, others do.

National Irish Bank has a levy of €6 for replacing cards and €1.25 for a replacement pin number, while Bank of Ireland charges €5.90 for a new card.

Postbank, which began offering banking services in Ireland’s post offices in 2008, is one of the most competitive banks in terms of additional charges.

While it charges €10 for unpaid standing orders, there are no charges for most other transactions, including bounced cheques, overdraft facilities and lost cards or pin numbers.

Moreover, Postbank charges a flat fee of €5 for non-euro cash withdrawals, unlike other banks, which charge a percentage of the transaction value up to a limit. So the next time you’re doing your Christmas shopping in New York and you withdraw $1,000, if you bank with Postbank you’ll pay €5 for the transaction, while if you’re with National Irish Bank or Bank of Ireland it will cost you €11.43, and if you’re an Ulster Bank customer, you’ll be charged €12, plus a 1.5 per cent foreign exchange fee.

Interest-paying current accounts

One way to make your current account work for you, and to offset any charges incurred, is to opt for an account that pays interest on the balance. Given the difficulties banks are facing, however, it is no surprise that they are cutting back on interest rates.

In June, AIB was offering 1.75 per cent on its High-Interest Account, provided that the account was credited with €1,500 every month. Since then, however, the rate has fallen back to just 1 per cent, while Bank of Ireland pays only 0.75 per cent.

Other banks are more generous – at least for the time being.

National Irish Bank offers 1 per cent on its Easy Plus Customer Package and 1.75 per cent on its Prestige account, while Permanent TSB pays interest of 2 per cent on amounts up to €1,500 if the account is funded with €1,500 each month.

Halifax is offering one of the best deals in terms of interest on your account balance. It pays 7.23 per cent on balances of up to €1,500, if you put at least €1,500 into the account each month.

So if your pay cheque goes into your current account, you should qualify for this offer. Just be sure your account is credited with the required amount each month; if not, the interest rate drops to 0.1 per cent.

Finally, while any interest earned is better than none at all, some banks only offer this facility as part of packaged, fee-paying accounts. National Irish Bank, for example, charges a quarterly fee on its interest paying accounts.

Packaged accounts

Packaged current accounts, which often impose quarterly fees but offer added incentives, are also available.

For example, National Irish Bank charges for its Easy Plus and Prestige accounts, imposing a quarterly fee of €18.75 and €31.25 respectively. However, you may decide that the incentives on offer do not justify the fees.

If you are a frequent traveller, free currency exchange and travel insurance is a useful incentive, while the Prestige account also offers free access to 500 VIP airport lounges around the world.

Both offer interest on account balances, but this is available on free accounts with other banks. The benefit of other incentives, meanwhile, such as “access to a named person who can give you any help you may need with your everyday banking”, is dubious.

Moreover, while the accounts promise no transaction charges, you will be caught out for additional transactions such as leaving a standing order unpaid (€10), replacing a card (€6) or placing a stop payment instruction (€5).

One type of packaged current account that is still going strong are student accounts, with most banks offering headline-grabbing incentives to get students to sign up.

With switching rates so poor in Ireland, banks love students. Once a bank has you as a customer, it can be reasonably confident it has you for life.

There is a wide variety of student accounts but, again, picking the right one can be difficult.

Students who become customers of AIB are offered free banking, but there are exceptions. For example, you will be charged €4.44 for each cheque lodged to your account and returned unpaid, while a fee of €10 applies for cheques, direct debits or standing orders presented on your account and returned unpaid.

In addition to a free flight to one of nine European destinations, if you open a student current account with Bank of Ireland and use it five times in both October and November, you will be offered a nine-month interest-free overdraft.

But go over this and a rate of 10.8 per cent kicks in, while if you go over your agreed limit, a surcharge of 7.2 per cent will be added, bringing your total interest rate up to 18 per cent.

Surcharges also apply if you fail to have your account in credit for 30 days in a year or if you are late making a loan repayment.

Permanent TSB promises “no silly charges” on its student current account, but if you choose to get your ATM card personalised, it will set you back €10.

Ulster Bank will give you €100 cash back when you open an account. Sounds great, but if you read the fineprint, you’ll see that, if the account is not used as your “main account”, the bank may seek repayment of this bonus.

Finally, if you’re aged 60 or over, you could apply for a Golden Years current account with Bank of Ireland.

Promising free day-to-day banking transactions and concessions on personal foreign exchanges, the account also offers an exemption from the overdraft facility fee. But, like other accounts, additional charges are imposed.

Overdrafts: tread carefully

When times get tough, the first port of call for many is applying for an overdraft on your current account. Often cheaper than credit cards and less formal than personal loans, overdrafts give you the option of borrowing up to a certain limit. And, as economic conditions worsen, the number seeking financial solace in overdrafts is on the rise.

Like so many Irish banking products, the terms and conditions of overdrafts, while not hidden, are often difficult to find or understand, and can exacerbate existing difficulties faced by borrowers.

In the year to June, the Money Advice and Budgeting Service reported a 56 per cent rise in the number of people seeking advice because they had run into trouble servicing overdrafts.

There are several costs associated with overdrafts, which mean that, while they may appear at first to be cheaper than a credit card, the costs can add up.

Banks often charge a set-up fee, a renewal fee, and an interest rate charged on outstanding borrowings.

For example, Bank of Ireland charges a €25 set-up fee, as well as a renewal fee of €25 and an interest rate of 13.7 per cent on overdraft borrowings.

Showing how difficult it can be to compare like for like, National Irish Bank charges no annual fee, has a lower interest rate at 11.4 per cent, and no set-up fee on credit limits up to €10,000. However, above this a fee of 1 per cent is charged, so if you have a €20,000 limit than you will be charged €200.

Permanent TSB offers a 0 per cent interest rate for first-time overdraft users for the first three months up to €10,000.

After three months, however, the rate returns to the standard variable rate, which is currently 13.6 per cent. So if you intend to keep an overdraft for the medium term, you might do better looking for a bank that offers a lower interest rate.

Another possible issue borrowers will face is interest rates. As rates on overdrafts are variable, banks can increase them at their will, provided they inform you of the change. Given that most banks already have, or are about to, push up interest rates across a range of variable products, it is not unlikely that overdraft rates will be next.

Banks have also moved to increase surcharge rates. These rates apply on any borrowings exceeding the agreed interest rate and can almost double the effective interest rate charged on additional borrowings.

Last year AIB hiked its surcharge rate from 9 per cent to 12 per cent and, given that its overdraft rate is currently 14.8 per cent, its overdraft product should be used with due caution.

For example, if you have a credit limit of €10,000 but overdraw your account by €15,000, the higher rate will be charged on the extra €5,000 borrowed. At AIB, this extra sum would incur an interest-rate charge of almost 27 per cent, while Permanent TSBs overdraft interest rate when the surcharge is added is 25.6 per cent. More competitive is Postbank, which has a surcharge of 6 per cent and therefore charges 18.6 per cent on all borrowings over the agreed credit limit.