Is your current account ripping you off?

CashMany high street banks make big play of offering 'free banking' facilities. Most of us still opt for current accounts that levy no automatic monthly fees, and that let us make free ATM withdrawals at any time of the day or night.

Which is all great, right? Wrong. New research shows that popular current accounts are actually making us pay through the nose - though many of us don't realise it...
The study - undertaken by Defaqto on behalf of the Daily Telegraph - reveals the extent to which our banks are tapping us for cash.

Up-front charges
The number of paid-for, 'packaged' current accounts was found to have more than doubled in the last five years. These accounts typically offer customers various 'extras' (in addition to basic banking services) - like travel insurance and ID protection.

In reality, most packaged accounts offer customers poor value for money: The monthly fees are significant (typically £10-£15) and the extra products they're offering don't meet consumers' individual needs.

But at least these accounts aren't actually claiming to offer 'free banking' services. So in theory, you know exactly what you're getting.

Hidden costs
However, the report also highlights several far less transparent ways current accounts make off with our cash.

No in-credit interest: Over 50% of current accounts no longer pay any in-credit interest to their customers. Of course, these banks are investing the money sitting in their coffers to make interest for themselves - but we're not seeing any of it.

Rising overdraft rates: At the same time, the interest rates we're paying on authorised overdrafts continue to rise.

In January 2006, the average authorised overdraft rate stood at 4.5% EAR. The research shows that rate has shot up, and now stands at 14.4%. That's despite the fact that the Base Rate has plummeted during the same period, to just 0.5%.

How can we dodge these rip-offs?
Unfortunately, there's no perfect solution. However, there are a couple of things you can do to minimise your losses.

First, do some independent research and find a current account that meets your specific needs. Don't just stay with your present provider because you've been with it all your life!

For example, some current accounts do offer very good in-credit interest rates, whilst others give substantial interest-free overdrafts. You need to work out whether you're mostly in the black, or mostly in the red - and go from there.

Second, don't be tempted into signing up for lots of other 'associated products' with the same provider. Many banks now offer preferential deals for customers who do this - but the chances are the extra products will be mediocre at best, and not meet your exact needs.
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