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.

Internet Banking

Internet banking can save you time and travelling, but there’s a wide choice. In the past five years, every high street bank has begun to offer internet banking, and plenty more internet-only banks have sprung up. Sometimes they just offer convenience, but some can give you deals you won’t find in branches. Internet banking refers confusingly to two different experiences. The first is a new type of bank only found online. Big internet banking names are IF, Smile, the One Account and Cahoot. These offer a selection of banking services, usually not as broad as a high street bank, but also offer innovative products which use technology to cut costs or add convenience to you the customer. For example, one feature of many internet banking outfits is offsetting- using the interest from savings in one account to offset borrowing on another account. Many of these internet banks have been bought by ordinary banks anyway- for example IF is owned by the Halifax. The second type of internet banking is online banking offered by most ordinary high street banks as part of their service. It’s highly unlikely that you picked your bank because of its internet banking facilities, but you should ask about their internet security and also how far back you can check statements online, for example. The Co-operative has particularly good security and a very flexible system for managing your account. Repeat statements usually cost up to £10, so signing up for internet banking can save you money- and don’t forget by reducing traffic in branches, you’re saving them money too. Look for internet-only offers (even from high street banks)- often you’ll be offered rates online that aren’t publicised elsewhere.

Private Banking

How private banking can make fairly rich people richer, and how to avoid the pitfalls. Private banking is relationship banking with a professional adviser; once for the very rich, now for anyone with five figures to spare. You will get the benefit of investment and tax avoidance advice, and ideally a better class of service than your local bank. In times gone, private banking was a personal relationship with a banking professional; the preserve only of extremely wealthy individuals, and designed to help them remain extremely wealthy individuals. Nowadays, private banking has become so competitive that you can find many open doors if you only have £10,000 in your pocket. I know that’s a lot, but it’s not the millions you required before. With £100,000 plenty of private banking agents will pop the kettle on for you. Furthermore, they want to talk to you because they know that if you have £10,000 now, you’re the type of person who might just have a million later. Making money is a lot easier if you have some in the first place. Therefore these days, it’s not just the personal relationship which counts- it’s also that the individual should be an investment genius, with a full knowledge of investment opportunities, tax avoidance schemes, offshore portfolios etc. to make your money go further. All the main banks have private banking arms, then there are plenty of specialist private banks- in fact thousands- it’s a global industry, and many sit quietly offshore in Monaco, the Bahamas, the Cayman Islands or the Isle of Man. There are famous names you will have heard of like Coutts (part of NatWest); but again there are two caveats. Firstly, remember that you require a relationship- someone who you will know for some time to come and will help you manage your money. A private banker is a financial adviser to the rich! And stemming from that, our second caveat: many offshore private banks are little more than fronts for a specific investment scheme; and you don’t have any legal protection in offshore regimes. So be sure to get a reputable company on your side, not a fly-by-night.

Business Bank Account Business banking costs you money- so get value in good rates and good advice. A business bank account is rarely free, so get one that offers value- not just in good credit rates but also decent advice applied to the management of your specific industry. Consider the number of transactions you’ll make, the financial structure of your company, the size of funds moving around, and how you wish to expand. Only settle for an account deal which will cater for all these issues and a manager with sound advice. Oh- and feel free to haggle! Your business bank account is nothing like your personal bank account. Depending on what you do, a different set of criteria come into play. For example, you may wish to take transactions in different currencies if you trade in more than one country. You may require a serious discussion about credit lines if you require capital expenditure before you even start trading. Since your business bank account will usually not be free to operate day-to-day (personal accounts usually are), you also need to have a fair idea of what your transaction throughput will be. If you do three big deals a year, that won’t cost much; but if you have hundreds of consumers and cheques, then your banking will suddenly become more expensive. But put all these issues aside for a moment- the defining factor in choosing a business bank account must be the support you get from a dedicated advisor. In the past, banks have been unswervingly remiss- failing in their obligation to provide decent service to small businesses. Slowly, that’s changing, with Barclays and the Allied Irish Bank showing the way forward. Who is your bank manager, and do you like them? Do they understand your business, and what you need to succeed? Far more so than in personal banking, with a business your bank needs to be your partner not your enemy. If you find yourself begging for consideration, it’s time to find a new bank fast.

Personal Banking

Why banking has changed in your favour, and being a customer can yield dividends. These days personal banking is about choices- where to save, invest, borrow, or indeed where simply to put your monthly income. Even if you do nothing but pay in your salary, there is a massive differential in interest rates between best and worst performing banks (3000%- yes 3000%!). So shop around and you’ll save, or earn, a tidy sum. Historically, personal banking meant having a bank account into which you put your salary, and an occasional visit to a mortgage lender (usually a different company) to keep your house on track. The banks were in the high street, and never competed very much for business. You also received little respect for your custom. Competition was stagnant to say the least. Welcome, however, to a brave new world of personal banking; where a far larger number of companies are only too glad to compete for your business- and for a much bigger range of products. Today you probably have a credit card; you might want a loan for a car, and we all have far higher personal incomes; which means we want savings accounts and investments too. We bank on the high street, the internet, and by phone; and we use different companies for different jobs- you might borrow with a different company than the one you have a bank account with. So the ethos of clever personal banking is to shop around- and never take “No” as the final answer- if you can’t get the savings, mortgage, credit card or insurance deal you want, chances are someone else can offer it to you. Despite this advice, 60% of people bank with the same company their whole life through, so get online and do some grafting- it could save you huge amounts of money for very little effort. You’re a customer now, not an inconvenience, and companies are hungry for your business.

Investment Bank

What to do when a savings account just isn’t enough for your spare cash! Investment banks don’t do current accounts- they make your savings work harder (usually you need £10,000 or so to start). When choosing an investment bank, ask about their past performance for clients, what breadth of investments they operate and specialise in, and what sort of personal service they can offer you. An investment bank is usually a smaller, specialist company than your traditional high street bank, although they do investment banking too. Your high street bank however is primarily geared to day-to-day banking; cheques going in and out, paying those bills, and offering credit and insurance. An investment bank doesn’t lend anything- it’s geared up for one specific purpose: to take your spare money, and turn it into more money. As such, investment accounts don’t offer easy access to your cash, or a cashcard- the whole point is to leave the money for a long time and let it work for you. Often you won’t even get a chequebook, and your money is only accessible after asking in writing. An investment bank often adds offshore services (specifically tax avoidance) and private banking to the suite of products, and often the terms are interchangeable. Be aware though that the job of an investment bank is to advise you on what to do. Expect a level of personal service. Don’t confuse this with investment trusts- which are just one of the many investments open to you. The bank is not a product in itself; it will take your money and invest it, as wisely as possible, into usually a multitude of different investment vehicles. However, you need to know that it is very, very rare that you get any compensation if the market goes down and you lose money. Compensation is almost exclusively confined to cases where clear negligence of illegal activity has occurred. Today, with the markets low and flat, opinion is divided- some say a recovery is on the way and we should invest; others say it’s time for the safe bet of putting your money into bonds. A good investment bank will advise you on precisely such issues.

UK Bank

If you’re looking for a new bank account, you’re already making a wise choice by bothering to hunt for deals in the first place. After much consolidation in the past 20 years, the UK bank and financial services industry is as lean as it can be, and despite market jitters, is performing well globally. You have a fine choice of banks and banking products at your disposal, so shop around, compare deals, and don’t be afraid of the jargon. The British Banker’s Association, the trade body (not a regulatory body) for the UK bank and retail financial services sector, says that over one million transactions pass through UK bank systems every day. The UK remains the centre of the world’s international banking industry, accounting for over 21% of global transactions. As such it will be of no surprise that the top 8 British banks also perform within the top 30 banks worldwide. That means you’re both in very safe and secure hands, but also subject to global economic movement and sometimes the banks are the last to embrace new technology. We’re also borrowing more than ever (which worries the new Bank of England governor, Mervyn King) with mortgage lending by UK bank and building society lenders up by a record £78 billion). So if you’re looking for a bank account, expect a fiscally sound service, but not exceptional customer service (although many online banks are changing that!) and go with a bank which will cut you some slack when you need to borrow money: it seems that we all need to these days! And don’t feel you need to stick with the same bank year after year, or indeed that you need to use the same bank for all your financial services. You wouldn’t get garden furniture from the same shop as you buy your groceries, and the same applies to money.

Internet Bank

An analysis of the explosion in internet banking facilities in the UK. In three years, use of internet bank accounts has increased ten-fold, as services become accessible to ordinary people and not just tech-savvy computer nerds. Simplicity, convenience and the wealth of online-only deals and offers are all reasons we’re parking the car and going online to bank. The development of internet bank accounts and online banking has been startling. In 1995 there were no online banks. The number of personal accounts accessed by computer increased by nearly 50 per cent in 2002 to almost 13 million, a ten-fold increase on the number just three years before. There are several good reasons for this. Firstly, there is a totally new breed of internet bank- operations not tied to the existing banks (although many are now operated by large banking organisations); these have offered completely new bank accounts and services you couldn’t get before. This has attracted entirely new customers to banking and improved customer choice for existing customers. Secondly, more people are hooked up to the internet than ever before- this ties in with better security and evaluation of security for internet bank operations. We now feel relatively safe passing credit card details and accessing our private accounts online. Thirdly, even where internet bank accounts are just an extension of high street accounts, we’re beginning to appreciate the convenience and reduced cost of banking online (even it just means not paying for parking in our high streets- where trade is rapidly dwindling in all retail sectors). In the next five years, expect online banking to improve further, so that the full range of banking products (and even face-to-face meetings with your manager) can happen in the online environment.