Choosing Banks and Financial Products in the UK
The Great UK Bank Robbery
This article was written with UK banks in mind, however, much of the advice offered is applicable worldwide.
The BBC recently broadcast a documentary on the UK banking industry.
A reporter got a job with a major bank and secretly filmed a range of scams all designed to rip customers off and boost already inflated profits. These included persuading customers to buy products that were unsuitable, and even switching customers from free to fee-based cheque accounts without their knowledge or authorisation.
The investigation also revealed the pressures placed on staff by management to sell, sell, sell.
The bank featured in the investigation was Barclays, but it seems these practices are commonplace in most, if not all, UK banks. But there are ways to protect yourself from becoming yet another victim.
One of the biggest causes of complaint is the extortionate fees charged by banks for unauthorised overdrafts or bounced cheques. The fees are supposed to be for "administration" but in reality bear no relation to the actual costs incurred by the bank. The situation is so bad that the practice is under government investigation.
Prevention is better than cure. The best way to avoid paying these charges is to keep your account in the black and only writing cheques to the value of your bank balance. Always keep an eye on your cash-flow situation, and where a problem is likely to occur, eg a bill is due a few days before your salary is paid, speak to the bank and arrange an overdraft facility.
In fact it's probably a good idea to arrange an overdraft even if you're the world's best money manager. It costs nothing to set up and offers a useful cushion in the event of the unexpected. However as even authorised overdrafts attract interest charges at a handsome rate, don't be tempted to use it just because it's there.
If you are subject to bank charges that seem unreasonably high, challenge them. Write to the bank stating that under the Unfair Terms in Consumer Contracts Regulations 1999 charges must reflect administration costs and cannot be punitive. Even if the charges have already been paid you can request they be reviewed retrospectively.
Another charges scam is that of mortgage exit fees. This is the fee you are charged on completion of your mortgage. It is supposed to cover the administration costs of closing your account. In practice they are a means of locking customers into a particular mortgage even though more attractive deals are available elsewhere.
Like banking charges mortgage exit fees have also been subject to government investigation.
If you're in the process of taking out a mortgage or switching your mortgage, be sure to take account of exit fees in making your choice.
If you already have a mortgage an exit fee may already be part of the initial contract. If so, you may just have to live with it - although if it seems excessively high it may be worth making a challenge.
Where the exit fee has increased during the course of the mortgage you have strong grounds to challenge it, unless the bank can show that its costs in closing your account have increased by a similar amount.
As with unfair bank charges, if you don't try you can't win.
All too often bank staff try to persuade customers to take out products they neither need nor want. Often this persuasion comes in the form of unsolicited "cold" calls, or under the invitation of a "free financial health check" or other equally reassuring names. If you are being plagued by unwanted calls, complain and inform the bank that you do not wish to receive further communication by telephone.
One common example is the fee-based current account. For a monthly fee these come with a package of benefits like car breakdown cover, travel insurance, a guaranteed overdraft etc (the actual benefits vary from bank to bank). They can be good value if you actually need the benefit on offer. The problem is that these accounts are recommended to people who have no need for the added extras and would be better off with the standard free cheque account.
If you are offered on of these accounts be sure to do a detailed cost-benefits analysis to ensure that what you are getting is actually worth the fee you are paying. If you already have one, check to see how much the benefits are actually worth to you. If the value doesn't exceed the fee you are charged, change back as quickly as possible.
Another example is the payment protection insurance that is usually offered alongside mortgages or loans. The idea is that the insurance will cover your repayments should you fall sick or lose your job.
The problem with these plans is two-fold. Firstly, they are offered to self-employed or freelance workers who are not covered in the event of unemployment, or are offered to people with pre-existing medical conditions that would be excluded from cover. Secondly, even if such insurance is suitable, the plan offered by the loan-granting institution may not be the most competitive on the market.
If you think payment protection insurance is suitable for you, be sure to visit an online price comparison site such as moneysupermarket.com to get competitive quotes from a number of suppliers before making a choice.
If you have payment protection insurance make sure that it is still appropriate
for your needs, ie that it would actually cover your payments should you
call upon it.
Visit an online comparison site to check how the costs and terms of your plan with others on offer to make sure you are getting the best deal. Don't hesitate to move your plan if you find a better one elsewhere.
In the good old days the bank manager was one of our most trusted associates who could be relied upon to offer informed and impartial advice. Sadly those days are no more and many bank managers and their staff are more akin to sharks who can smell the blood of unsuspecting customers from miles away.
To stay safe in today's banking jungle always keep your defences up, question every recommendation, and if in any doubt, just say no.
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