Bank

The high street isn’t necessarily the best place to put your money

Finding the right bank means working out which bank gives you a good return on your business- whether that be interest on your savings or a cheap loan rate if you’re borrowing. It also means the bank which provides the full range of services you’ll need, and which rewards you for your loyalty in using them.

If you ask your parents, they’ll tell you that a bank is a building on the high street that closes at 3.30pm and claims to look after your money. These days that’s no longer necessarily the case. Of course you can still use a high street bank- and there are good reasons to do so, but you need to consider two other types of bank as well. If you’re tech savvy (and you’re reading this after all) consider internet banking. Many internet banks (Cahoot, Smile) offer proper current accounts, and because their costs are lower they can give you a better rate of interest on your money. If you don’t like internet banking, perhaps try First Direct bank. It offers arguably the best telephone banking service, and some excellent products too.

One thing to bear in mind though. Not all internet banks do offer current accounts. And some that do may not offer the breadth of other services your high street bank can. You see, everyone needs to make money somewhere. Since day-to-day banking is usually free of charge, some internet banks won’t do it. Your high street bank can offer you free banking because they’ll make a profit in other places- investments or loans for example. So don’t just consider the interest rate on your current balance- ask yourself what overall services you need (Loans? A cashcard? Instant access to money?) before deciding which bank to plump for. Over half of us never bother changing bank accounts, so you’re already taking a step in the right direction!

Banking

How banking has changed in the past 20 years in your favour! In your lifetime, you will use plenty of banking products that were previously not available to the ordinary person. Most of us have credit cards, loans, investments and insurances. This has made banking a much more competitive industry, and you have the right to expect great service for your custom. The face of banking in the UK has changed immeasurably in the past two decades. While we were busy living our lives, the financial services industry consolidated almost overnight, with most small banks being swallowed up by large ones- some fifteen very large global companies take care of the vast majority of daily banking. But at the same time, lots of exciting new players have appeared. Small banks and lenders provide services for people who otherwise would never have access to credit; or even sometimes a bank account. New technology (cash machines, CHAPS clearance, credit scoring) mean we can get to our money faster- and do more with it. More of us are investing than ever before- and with government support (remember PEPs and TESSAs, or today’s ISAs) plenty of us are making money out of our savings- even if it’s only a few pennies for a few days. Banking is now a highly competitive industry whereas twenty years ago, you were grateful that your bank manager even gave you the time of day. Since we are now sophisticated financial consumers, aware of our banking options, and likely to demand several products in our lifetimes (not just a bank account and a mortgage), we owe it to ourselves to force our bank managers to justify their existence. Keep your bank manager on his toes!

Bank Account

What to look for when selecting a bank account Most banks now offer at least three types of bank account. Even basic accounts offer a cashcard; premium accounts have a whole raft of services bolted on. Very few current accounts remain just a place to put your cash, so tot up the benefits and shop around before deciding where to put your salary each month. A bank account is no longer just a place to put your money so that it’s safe and you can write cheques. For starters, current accounts can offer interest- but rates vary wildly. The good internet banks can offer up to 30 times as much interest as the high street banks! But there are plenty of other things you should be aware of. Do you get a cashcard, a cheque guarantee card, a switch card (or all three in one card) with your bank account? Ask what charges are like- for going overdrawn or for simple services like getting an extra statement sent out. Overdraft fees vary from 8% to 34%! And can you get an overdraft at all- some banks offer £500 with no questions asked; others will expect you to fight tooth and nail. A new breed on the scene is the premium bank account. These charge a modest fee (£5 to £10 per month) and offer a bunch of extras, usually cheaper borrowing, travel insurance, roadside rescue and shopping. If you use these services, maybe that’s a good economy. And do you have easy access to your bank and more importantly your manager? NatWest have stopped using call centres and offer you direct access to your branch- in general that’s a good thing. Finally watch for special services that might be a bonus. Abbey National for example offers “sweeping”- automatically putting spare money each month into a savings account, offering you better interest. Many internet banks also allow you to offset interest on your current account against a mortgage. So tot up the benefits- your bank account should include extras and benefits, it’s no longer the same as a piggy bank or a box under your bed!

Business Banking

What to look for when selecting a business bank account Due to laziness alone, we often do our business banking with the same people our personal bank account is held with. If you shop around, you won’t get much of a better deal financially (rates and services are generally almost identical) but you will find banks who offer better service, better personnel and advice. Business banking is very different to personal banking. To begin with, your choice of banks is different and much more limited than with your personal bank account. You won’t get the benefit of the new rash of internet banks- but the high street banks are becoming more competitive for your business custom. This is because business banking is where they usually make some money. You should expect at least to get your first year’s business banking free (provided you remain in credit). Thereafter you’ll be expected to pay a fee per transaction, so factor that into your cost base. You should also expect access to a business banking advisor; who is there to help. Tales of woe abound about these people- plenty of business advisors never call you up except to try to sell you things like mortgages, but Barclays in particular is improving by having advisors who are specialists in particular businesses e.g. construction, technology etc. You should also get some sort of credit- even if it’s a card you pay off each month. And before opening your account, see what overdraft and loan facilities are available- you may not need them now, but you should know what their attitude to lending is so you’ll be prepared when you need it. Finally, you have some options that may not be immediately apparent. As you may not be in your branch so often, smaller regional banks may be preferable to the big high street banks. The Allied Irish Bank, for example, has an astonishing record for looking after its business banking customers, but might not have been on your list.

Offshore Banking

The undoubted tax benefits of keeping your money in a foreign country; weighed against the regulatory downside. Offshore banking isn’t necessarily only for the very rich. It means avoiding the British taxation system by putting your money in a country with a more favourable (i.e. cheaper!) tax structure. If you run a flourishing business or have just received an inheritance; give some time to evaluating offshore options before popping the money in a tin under your bed. Offshore banking is confused in many people’s minds with private banking, because both are largely the preserve of wealthy people. But the difference is clear. Private banking is indeed banking by private relationship, and is definitely for high net worth earners. Offshore banking literally means banking under a different financial regulatory regime to the one in place in your home country. It is therefore primarily a tool either for expatriates or for those for whom it is most tax efficient to move money out of the UK. As we actually have a very equitable tax system (in many countries the top rate of tax is 50% or more), it is in practice only the more well-off people who engage in offshore banking. Tax havens where UK tax regulations do not apply include the Isle of Man, the Channel Islands and further afield Switzerland, Luxembourg, the Cayman Islands and Bermuda. Offshore banking also refers to the breadth of investment opportunities available under these different countries’ regimes; but that also means you don’t have the protection of the UK’s Financial Services Authority, and there are plenty of scams operating offshore, so get advice before you invest. All the main banks and private banks have offshore divisions which will assist you; many fund management houses (e.g. Lazard, Hill Samuel, Rothschild) also provide offshore investment, or you can head for a specialist consultancy such as Walbrook or Brown Shipley & Co.

Offshore Banking

The undoubted tax benefits of keeping your money in a foreign country; weighed against the regulatory downside. Offshore banking isn’t necessarily only for the very rich. It means avoiding the British taxation system by putting your money in a country with a more favourable (i.e. cheaper!) tax structure. If you run a flourishing business or have just received an inheritance; give some time to evaluating offshore options before popping the money in a tin under your bed. Offshore banking is confused in many people’s minds with private banking, because both are largely the preserve of wealthy people. But the difference is clear. Private banking is indeed banking by private relationship, and is definitely for high net worth earners. Offshore banking literally means banking under a different financial regulatory regime to the one in place in your home country. It is therefore primarily a tool either for expatriates or for those for whom it is most tax efficient to move money out of the UK. As we actually have a very equitable tax system (in many countries the top rate of tax is 50% or more), it is in practice only the more well-off people who engage in offshore banking. Tax havens where UK tax regulations do not apply include the Isle of Man, the Channel Islands and further afield Switzerland, Luxembourg, the Cayman Islands and Bermuda. Offshore banking also refers to the breadth of investment opportunities available under these different countries’ regimes; but that also means you don’t have the protection of the UK’s Financial Services Authority, and there are plenty of scams operating offshore, so get advice before you invest. All the main banks and private banks have offshore divisions which will assist you; many fund management houses (e.g. Lazard, Hill Samuel, Rothschild) also provide offshore investment, or you can head for a specialist consultancy such as Walbrook or Brown Shipley & Co.

Bank Loan

Where to go to get a fair deal on a bank loan A bank loan is now available from an increasingly broad range of lenders, but the interest rates vary wildly too. To get a good rate, you need to think about what the loan is for, what your credit record is like, and whether you need extras like repayment insurance. A bank loan is an amount of money agreed with the bank that you borrow, and repay with interest across an agreed term. Usually, you’ll pay equal monthly instalments- part of which is the loan amount, and part of which is interest. So you will pay back more than you originally borrowed. Personal loans are usually economical up to 5 years- (although many banks will lend across up to 7 years). Thereafter consider a home loan if you have equity in your house. Before getting a bank loan consider carefully whether you need to borrow, and what it’s for. Debt consolidation, for example, can cost dearly- so be sure to get the best rate. You can get a bank loan from plenty of places- not just banks. Supermarkets like Tesco and Sainsbury’s have banking arms which will lend to you. Consider also internet banks like Cahoot, Smile or First Direct. Finally, if you’re in credit difficulties, there are specialist lenders like Purple Loans who can also help. Note that the interest rate you pay on your bank loan will not necessarily be the one you see quoted in literature. Usually the rate is based on your creditworthiness, which will be ascertained partly on your credit history (this is known to most financial organisations) and partly on the information you give on your application form. If you’re deemed to have good credit, you’ll get a lower interest rate than a bad debtor. If you’re refused credit, the bank won’t have to tell you why; but you do have the right to see your credit record, which is held at credit reference agencies like Experian. It usually costs £2, and if your record is wrong, you can have it changed free of charge.