Six ways banks make money off you

Banks are extremely adept at turning a profit.

Whether it's charging you to withdraw money or offering worse rates to loyal customers, they have a host of tricks to get you to part with your cash.

Here, we explain how their most common wheezes work, then show you how to dodge them.

1. Great savings rates (that don't last)
Many banks will offer a headline-grabbing rate on certain savings accounts in order to and attract loads of their customers' cash.

Sadly, that great rate has an expiration date (usually 12 months), and the account then plummets to a derisory rate.

It's a depressingly common practice – most of the accounts you see in savings best buy tables come with a bonus, or teaser, rate.

How to dodge it: Keep your money on the move. Once you deposit your savings, make a note in your phone, calendar or diary to switch in a year to a new chart-topping account. If constantly switching is too much of a hassle, you could opt for an account that doesn't have a bonus rate, but these tend to pay a lower rate, so you'll be paying a price for the convenience.

Compare savings accounts: earn up to 6.4%

2. Best rates reserved for new customers
When it comes to banking, loyalty seldom pays. Most banks reserve their best deals to attract new customers, using their existing customers to bulk up their profits.

How to dodge it: Never simply go straight to your bank when you need a new product. Instead take the time to shop around – chances are one of their rivals will offer you a better deal in order to entice you.

3. Low mortgage rate equals high fees
It seems an odd thing to say, but quite often the mortgage with the lowest rate isn't the cheapest deal on offer. This is because banks will often apply massive fees – sometimes in the thousands of pounds – in order to qualify for that great rate.

How to avoid it: Always compare the total cost rather than just the monthly repayments to see which deal is best for you. As a general rule, it's worth paying a bigger fee to secure a low rate if you are borrowing a large sum of money. A higher rate can be worth going for on smaller loans if it means no fees.

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4. Sky-high overdraft rates
While the base rate stands at just 0.5%, high street banks can charge between 18% and 20% interest on overdrafts.

While a regulatory crackdown has forced banks to reduce these rates, it still represents a huge waste of your money - especially when it's so easy to avoid.

How to avoid it: There are current accounts specifically designed to offer low overdraft costs. If you're often in the red, make sure you switch to one of them immediately.

5. Miserly credit rates
Most high street banks pay a miserly 0.1% credit interest on their current accounts, while some pay you nothing at all.

How to avoid it: take the time to switch to a bank that rewards you for your custom? Some accounts out there pay as much as 5% on credit interest. All you have to do is shop around.

Unhappy with your bank? Switch to a better one today

6. Foreign transaction fees
Every time you use your card while abroad, banks charge you a fee of up to 3% of the transaction. It's called a foreign transaction fee and it's a profitable business: data shows that banks rake in almost £60 million a month during the peak summer period.

How to avoid it: Banks charge different amounts for this and some don't charge for European transactions, so checking the small print on your deal or switching current accounts can save you money.

Alternatively, you could consider taking a pre-paid travel card with you overseas. It works just like your bank card except that you can load it up with foreign currency, allowing you to avoid the foreign transaction fee altogether. Just make sure you do your research, as some pre-paid cards come with hefty fees themselves.

So there you have it – six common tricks banks make money off of you. Which one have you fallen foul of the most? Are there others you find really annoying? Share your thoughts and experiences in the comments section below.