Review of the week: Santander ZERO Current Account

Another stage in the ongoing battle between the banks and the Office of Fair Trading over the fairness of overdraft charges will end on Wednesday. The Supreme Court will announce its decision on whether fairness rules apply to unauthorised borrowing charges.

This won’t be the end of the saga, which has been running since July 2007, because the OFT will still have to decide whether or not these fees are fair, and if they’re not, what a fair charge would be. For the one million - plus people whose claims for refunds are currently on hold, the waiting game continues.

However, there are changes afoot in the wider current account market, suggesting banks are preparing themselves for a shake-up. Halifax is changing its overdraft charging structure from 4 December by getting rid of penalty fees and an annual rate of interest. Instead, customers will be charged a daily fee for going overdrawn.

Santander, which owns Abbey, has just announced that it will launch a new current account in January, the ZERO account, which will have no overdraft fees. So what exactly is this new offering?

What’s the deal?

This new current account offering breaks the mould with regards to rates and charges. Customers will receive an in-credit interest rate of 6.00%, which is fixed for 12 months, on balances up to £2,500, as long as £1,000 is credited to the account per month.

There will also be no charge for using your debit card abroad – a move which will be a blow to Nationwide Building Society, which doesn’t charge customers for overseas transactions within the VISA Europe region.
 
However, it is in the fees arena where the Santander ZERO account comes into its own. Overdrafts won’t be completely free: you will be charged an annual interest rate of 12.9%. However, if you creep over your agreed limit, unlike most current account providers which will slap you with charges, the ZERO account doesn’t charge for anything.

Don’t assume this will mean you can ignore your overdraft limit and exceed it without a second thought. While you won’t be charged for being overdrawn without permission or having a direct debit or standing order paid, chances are fewer of these payments will be authorised. Instead, they’re likely to be declined and you’ll be stuck with no money. 

Santander isn’t launching the ZERO account until January but if you’re interested, you can register for it now.

Any catches?

The key thing with the ZERO account is that only Abbey and Bradford & Bingley (B&B) mortgage customers qualify. It will be rolled out to Alliance & Leicester mortgage customers too, once the Santander rebranding process is completed later in 2010.

And you must keep your mortgage with Santander in order to retain the current account.

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Verdict

There is no doubt that the Santander ZERO account is well worth considering if you are an Abbey or B&B mortgage customer as it is competitive whether you’re regularly overdrawn or always in credit.

However, we’re seeing an increasing number of products being launched that are only available to customers who have another product with the bank or building society and it’s worth thinking about why. Basically, providers are trying to deter customers from going elsewhere.

If the products available are highly competitive, then of course they’re worth taking advantage of. But one thing to bear in mind with the ZERO account is that you’ll only be able to keep it for as long as you have a mortgage with Santander.

You might be on a competitive deal at the moment, but what about when that ends? There may be better rates from other lenders and you’d have to change your current account as well as your mortgage. This shouldn’t put you off taking advantage of the ZERO account as it is undoubtedly a great product but be prepared to move again if more competitive deals become available in the future.

Top Tip

Avoid going overdrawn, or exceeding your overdraft, without permission. Even if you won’t be charged unauthorised borrowing fees, the knock-on effects can still be significant: missed payments caused by direct debits that have been declined or cheques that have been bounced can have a negative impact on your credit score. In turn this may reduce your chances of being accepted for credit in the future.

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.

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