Five ways to beat the banks

Published:
30 March 2011
Topic:
News,Money,Credit Cards,Current Accounts,Loans,Mortgages,Savings

You work hard for your money, so when you put it in the bank, you want to know it is working as hard as possible for you.

But if you fail to take advantage of the best deals on offer, then it'll be your bank or building society that makes money from you, rather than the other way round.

Here are our five top tips for minimising the amount you hand over to the banking industry every year...

1. Switch your current account

Research shows that we are more likely to get divorced than to change our current account, even though the switching process has become much quicker and easier over recent years.

New customers are also often rewarded for making the switch with incentives such as cashback or free holiday vouchers.

The market-leading Santander Preferred Current Account, for example, gives £100 cashback to new customers who switch online, while Norwich & Peterborough Building Society's Gold Classic account offers a £150 holiday voucher - valid with any ATOL/ABTA tour operator - to those who take out the account through moneysupermarket.com.

Switching to the acclaimed First Direct 1st Account also results in a £100 cashback payment.

Incentives are far from the only reason to vote with your feet when it comes to your current account, though. Many accounts offered by the big banks pay credit interest of just 0.10%, and even those offering more generally fall way short of the best deals available.

Lloyds TSB, for example, has this week changed its Vantage current account to offer interest of 1.5% (up from 0.1%) on balances of up to £1,000 and 3% on balances between £1,000 and £5,000.

But the Santander account mentioned above pays 5% on balances between £1 and £2,500, as long as you pay in at least £1,000 a month. What's more, it also offers an interest-free overdraft for the first 12 months.

2. Pay off your credit card in full every month

Banks make huge amounts of money out of customers who take out credit cards, spend, spend, spend, and then pay off only the minimum amount every month.

But if you manage your account well enough to pay off what you spend within the interest-free period each month, you can benefit from credit cards offering cashback or reward schemes, without it costing you a penny.

Among the best cashback cards are the MBNA American Express card with Cashback, representative APR of 18.9% variable, which pays 1.5% on most supermarket and petrol transactions and 0.75% on all other purchases, and the American Express Platinum Cashback card, which offers up to 5% cashback for the first three months and up to 1.25% thereafter. The representative APR on that card is 19.9% variable, so you'll want to clear the balance each month with both.

Meanwhile, if reward schemes are more up your street, the Marks & Spencer Credit Card and the Tesco Clubcard Credit Card offer attractive benefits for shoppers loyal to those stores. M&S charges a representative APR of 15.9% variable, while Tesco has a representative APR of 16.9% variable.

Finally, if you already have credit card debts built up, you can bring expensive interest payments to an end by transferring your borrowing to a 0% balance transfer card.

Barclaycard Platinum is currently offering the longest 0% period at 20 months, although the upfront fee is a hefty 3.2% and the representative APR you will pay once the 20 months are up is 17.5% variable.

3. Overpay on your mortgage

While the interest rate you pay on your mortgage is generally lower than what you pay on other debts such as credit cards, you will generally hold this debt for much longer - meaning that the sum you pay in interest still mounts up over the term.

But if you have some spare cash, and your mortgage deal offers you the ability to overpay, you can massively reduce the amount you pay overall.

You will need a mortgage that does not penalise you for paying it off more quickly to make the most of this tip.

Top deals that fall into this category include First Direct's tracker, currently at only 1.99%, which has a £999 fee and deposit requirement of 35%, and HSBC's term tracker, which has a current rate of 2.29%, a fee of just £99 and requires a 30% deposit.

Most fixes do have early repayment charges during the fixed-rate period, but you could opt for an offset deal that lets you use your savings to reduce the amount on which you pay interest.

4. Change your savings account

Failing to check up regularly on the interest you are getting on your savings can result in your money languishing in accounts paying well below the interest rates available elsewhere - especially if the provider in question has stopped marketing the account.

Shocking research from data analyst Defaqto indicates that newly launched accounts typically pay 253% more interest than their longstanding counterparts.

If that makes you sit up and think, top accounts available at the moment include the Nationwide MySave Online Plus account, which offers easy access to your savings and has a current headline rate of 3.05%. This rate includes a 12-month 1.51% bonus. Bear in mind that this account only allows one penalty-free withdrawal a year. Any more and you'll lose interest for a month.

Meanwhile, anyone looking to use their 2011/12 ISA allowance and who wants a better rate on previous years' savings should take a look at Nationwide Building Society's e-ISA.

It has a current rate of 3.10%, including a 1.35% bonus for the first year, and accepts transfers in from other ISAs. You must open a Nationwide card account to qualify, though.

5. Try social borrowing/lending

If you are in the market for a personal loan, you can sidestep the system by borrowing - or lending for that matter - through Zopa.com.

This website brings together individuals who want to lend money to other consumers in return for interest of about 8%, depending on the amount being loaned or borrowed and the borrower's circumstances.

To borrow £5,000 over three years, for example, a quick search on the Zopa website indicates a fixed headline rate of 8.3%, with monthly payments of £156.58 and a total repayment of £5,637.

This compares to a best-buy headline rate of 8.4% through Sainsbury's Finance for the same amount and term, with monthly payments of £156.90 and a total repayment of £5,648.

Zopa lenders, meanwhile, have received an average 7.6% return on their money over the last 12 months, the company claims.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

We're free, independent and compare all UK loans and credit cards, as well as offering exclusive deals you can't get anywhere else.

Contact moneysupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011

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