I recently read an article in the Daily Telegraph from the UK, which looks at finding the best bank account, a topic which I've of course written about before on Choosing The Best Account.
While the Daily Telegraph article focuses on UK banks and bank customers, the issues will be interesting to all those who are asking themselves “which is the best bank for me”.
The article found that the British public are very resistant to changing banks, especially when it comes to current accounts. I suspect that is true in other places as well and we'll talk about that later.
Banking Terminology – Current Account
Let's pause for a minute and sort out the terminology. For those that don't know the UK terms, a current account is roughly equivalent to a checking account in the US. Both are transactional accounts. As Wikipedia says on transactional accounts:
Transactional accounts are meant neither for the purpose of earning interest nor for the purpose of savings, but for convenience of the business or personal client; hence they tend not to bear interest. Instead, a customer can deposit or withdraw any amount of money any number of times, subject to availability of funds.
Wikipedia goes on to talk more about what a current account is and give some more information about what the typical current account is like in the UK:
Current account is the name given to a transactional account in the United Kingdom and countries with a UK banking heritage, offering various flexible payment methods to allow customers to distribute money directly to others. Most current accounts come with a cheque book and offer the facility to arrange standing orders, direct debits and payment via a debit card. Current accounts may also allow borrowing via an overdraft facility.
So that's what a current account is: a transactional account, similar to a checking account. Its purpose is to manage every day expenses, rather than saving money etc.
Reluctant To Change Current Account
Now that we've put the terminology to bed, we can get down to the point of the Daily Telegraph article. It states that the average customer in the UK is very unlikely to change their current account, despite widespread consumer dissatisfaction with UK banks. They quote a survey by Age Concern, a spokesmen of whom goes on to say:
Married couples are around three times as likely to divorce than to change bank. Despite a consumer backlash over unfair bank charges‚ many unhappy bank customers are still failing to vote with their feet.
The statistic about married couples being 3 times more likely to divorce than to change bank is a mind blowing one. You shouldn't just change banks for the hell of it, but it should be something which people are open to doing and are actively looking at on a periodic basis.
As for marriage, well, I'm not giving advice on that, but if you've got problems you should be asking yourself: how can I save my marriage? Give up on a bank? Yes! Give up on marriage? No! I hope we've got that straight now!
Great Incentives To Change Bank
The article goes on to say that banks are offering great incentives to open a current account with them, knowing that once you do, the chances are that you'll be staying with them for a long time. For example, First Direct and Alliance & Leicester will both pay you £100 to switch to certain current accounts.
Hmm, great incentives to switch account? That sounds like something I just wrote about in my last post on great deals at selected banks. As I said in that post, you better be wary of choosing a bank based on incentives only. The incentives may very well not last, then you'll be stuck with a bank that may not be the best bank for you.
This goes double for the UK, where people are so unlikely to change account later (although as I said above, I suspect that this is similar elsewhere). Once the banks have you, you're stuck – or so they think. Of course, you can change to bank which suits you better.
Leaving that aside, it's better to find the best bank for you the first time round, so be careful not to place too much emphasis on the incentives on offer. Instead, look at the other criteria as these are more likely to be benefits in the long term.
Anyway, I've said that before and the Daily Telegraph article is saying the same thing:
If you originally chose your bank because it offered a free Young Person's Railcard for a year, or some discounted cinema tickets, chances are it is not serving you well now.
To check whether you should be switching account, start by assessing your needs. Your lifestyle and the way you manage your finances determines which type of account is right for you.
Criteria For Finding The Best Bank
It goes on to offer some sound advice on what criteria to use when choosing the best bank:
If for example you usually spend your whole income and often (or always) go into your overdraft, concentrate on the overdraft interest and charges. If on the other hand you are always in credit, choose the account that offers the best credit interest and added benefits if you think you are likely to take advantage of them.
Of course, you can also take other things such as home loan rates, what credit cards they offer, customer service, location, number of ATM points, internet banking, telephone banking, what their fdic insurance coverage is like etc.
One point that the article highlights as something to be careful about in the UK is overdraft rates and charges. Some banks will punish you severely if you go over your limit. Something to watch out for! I always recommend that you don't use an overdraft facility, but there are times that you just have no option.
The article also says that the big banks came out with the worst customer service level in a recent customer satisfaction survey. That makes sense really - the smaller banks have to work harder to get customers so they often provide the best customer service.
Before you get excited and move to a small bank, you have to weigh this up with the security of being with a big bank. This is especially important in the current economic climate. You don't want to join a bank that may fold!
I can't help but point out that HSBC scored only 57%, which doesn't surprise me in the least, because I was a HSBC customer when I lived in the UK and experienced a nightmare when I tried to close my accounts and transfer the balance overseas (it took 6 months and 30-odd calls to finally do it!).
Well that's all for this post. Hopefully this has given you some hints as to what to look for when you are searching for the best bank.
