Finding The Best Bank Account

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.

Choosing The Best Account

There are many features you need to consider when working out how to find the best bank for you. These include things such as the bank location, customer service, etc. We'll look at each of these in turn, but we'll start with account type.

If you want a certain account type, you need to make sure that the banks you are looking at offer the account type you want. They may be the best bank in every other respect, but if they don't have the account type you want, you better forget them and keep looking at other banks.

There are many different types of account. It's not possible to cover all types of accounts, offered by all banks, in all parts of the world, but we'll look at the most common account types and their advantages and disadvantages.

Note that some banks may use different names for these account types.

1. Savings Accounts

Banks may offer several types of savings accounts, but they generally have the following features in common:

• They allow you to make deposits and withdrawals, although they sometime place limits on the number of transactions allowed in a month.


• They often do NOT give you the ability to write checks. If writing checks is important to you, make sure you check whether the banks you are considering offer this.


• They are normally intended to give you an incentive to save money, resulting in higher interest rates than some other types of accounts (such as a checking account).


• You sometimes have a choice between: a) a passbook, where you can record all your transactions; and b) a statement, which is mailed to you periodically, showing all your transactions. While a passbook gives you greater control, a statement is more convenient.


• Be careful about fees: there are many types of fees, sometimes hidden, such as a fee applied when your balance falls below a specified minimum or you pass your monthly transaction limits.

2. Regular Checking Accounts

Checking accounts offered by banks will obviously vary, but they have generally have the following:

• They normally have lower fees, but as a result, provide just the basic set of features.


• By definition, they give you the ability to write checks.


• They often do not pay any interest at all.


• As with savings accounts, be careful with fees. There are sometimes fees related to limits on the number of checks you can write within a month or to minimum balances.


• Some banks offer the facility to link checking accounts with saving accounts, to offset the minimum balances.

3. Interest Bearing Checking Accounts

As well as the regular checking accounts discussed above, most banks offer a checking account which has more features. Here are some of the features normally offered:

• They usually allow you to write as many checks as you like (ie unlimited checks)


• They normally higher fees than a regular checking account.


• By definition, they pay interest.


• The higher your balance, the higher the interest you earn.


• They often require a minimum balance to open an account.


• There are normally fees related to to a minimum balance.

Note: If you can keep your balance high, consider a Interest Bearing Checking Account. If you can’t keep the balance high, then go with the Regular Checking Account. Otherwise, the interest earned may not cover the fees!

4. Express Checking Accounts

In addition to the checking accounts mentioned above, there are also Express Checking Accounts, which are aimed at people who don't normally go into the branch.

• They usually offer unlimited check writing.


• They usually don't have a high minimum balance requirements.


• They have no (or low) monthly fees.


• However, visits to a teller will incur a high fee.

4. Money Market Deposit Accounts

A combination savings / checking / investment account, which usually has the following features:

• They require a high minimum balance to open an account.


• You need to maintain a higher balance to avoid fees.


• Your balance is invested in short-term debt such as Treasury Bills.


• They offer a higher interest rate than checking or savings accounts, but interest rates can vary (based on market conditions).


• There are often limits on how many checks you are to write and how many transactions you can perform.


• There will almost certainly be a fee if your balance falls below a specified amount.

5. Certificates of Deposit

Also known as time deposits, certificates of deposits are accounts where your money is ‘locked away’ for a certain amount of time (anywhere from several months to several years). Common features include:

• They offer high interest rates (the longer your money is ‘locked away’, the higher the interest rates).


• They have a substantial penalty if you decide to withdraw your money early (ie before the CD matures).


• Some banks allow you withdraw the interest before the CD matures.

6. Other Account Types

There are of course many other types of accounts, but we cannot cover them all. One type account that is becoming more common is the internet bank accounts (not just internet access to your normal account - actually a separate type of account). We'll cover these types of account as a separate topic sometime in future.