Why banks are good to us

From awards for poor customer service, to complaints about interest rates; we Brits love to moan about our banks. But I think it's time to celebrate just how good we've got it.

It’s unusual to pay for a current account in the UK. But this is far from normal when you consider the rest of the world. In other countries, customers pay a monthly or annual fee for their banking, or even a payment per transaction.

Here in the UK, what started as a promotional freebie for students quickly became the norm – and, just as quickly, we got used to it.

Love money? Love your bank

Don’t worry, I’m not suggesting you go out and hug a banker. But I thought I’d take a look at some of the ways our banks are good to us, and the growing number of accounts that pay you to use them seemed like a good place to start.

For example, the Santander Preferred Current Account and the first direct 1st Account pay customers £100 cashback when they switch over and use it as their main bank account – although you do usually need to use their switching service in order to qualify.

These accounts aren’t suitable for everyone. Santander requires you to pay in at least £1,000 every month and first direct wants a minimum payment in of £1,500. If you don’t manage that then you’ll be charged a fee.

And while Santander gives you an interest-free arranged overdraft for 12 months, it charges you 50p a day after that, capped at a maximum of £5 a month. Meanwhile, first direct pays no interest on your money but offers an interest-free £250 overdraft.

Of course, £100 is nice, but it’s just a one-off payment. If you switch to the Halifax Reward Account, it pays you a fiver every month that you pay in £1,000. So, over one year you could earn £60 just for carrying out your everyday banking. Not bad.

While that’s a very enticing offer, you’ll pay more than that if you’re always in and out of an overdraft. Halifax charges £1 a day on agreed overdrafts of up to £2,500 and £2 a day for agreed borrowing over that. Slip over your overdraft limit and you’ll be hit with a daily charge of £5.

But if you’re a pretty standard customer, paying money in, taking money out and rarely using an overdraft, then these accounts pretty much offer free money.

There’s no such thing as free

I say free money but, as everybody’s grandmother has warned them, you don’t get owt for nowt. While I think we should recognise the service that banks and building societies provide, it’s also important to remember that they are businesses.

Providing current accounts costs money; there’s admin, staffing costs and even interest to pay. Banks will extract that investment back, plus a profit, through loans, overdraft charges, mortgage rates and other services.

There’s nothing wrong with that, we want our banks to be profitable (especially the ones we own!). But it’s worth keeping in mind when you’re looking at charges.

Don’t be enticed by free cash or phone insurance or whatever you’re being offered. If there’s the smallest chance that you’ll end up in the red then look at the charges associated with the account too. The bank is making money somewhere.

You should also avoid the temptation to do all your business with the same bank. If it’s spending money to keep you as a current account customer then it’s making it back elsewhere. Compare different financial products and find the best-value option for you each time. Complacently using one bank for all your financial products will cost you money.

When a fee is cheaper than free

Although most people expect their banking to be free, there are a growing number of paid-for accounts. But even these are loaded up with freebies and complementary services to entice customers to pay; very few simply demand cash for the basic service.

However, some of these accounts have such a good package of benefits, or such a good rate on overdrafts, that it may actually make financial sense to pay for their services.

For example, the Royal Bank of Scotland’s Royalties Gold and NatWest’s Advantage Gold accounts have a monthly fee of £12.95 but each includes over £1,000 of benefits, including worldwide travel insurance, breakdown cover with a home-start service and mobile phone protection.

If they are benefits that you’d otherwise buy then you could be better off paying for an account that includes them.

There are lots of different fee-charging accounts, with different monthly charges. Compare them carefully to find the one with a raft of benefits you’ll actually use.

Paying to manage your money

One organisation – thinkbanking – has even set up a fee-paying account that promises to help you manage your money better. The idea is that, although you pay a monthly fee, it helps you avoid financial problems like missed bills and the charges that follow.

A thinkbanking account is actually two accounts, one for your bills and one for spending. Your salary is paid in and the money you need to meet your financial commitments is held back, while whatever is left is paid into your spending account.

If you want to move money from the bill pot, you need to ring and discuss it with a ‘money manager’ – quite a disincentive!

But this dedicated service doesn’t come cheap. You should only open this account if you really need this kind of help and it will save you money in the long run – there’s a one-off set-up cost of £25 and then a monthly charge of £14.50.

Frankly, you're probably better off using a money management tool, like lovemoney.com's MoneyTrack, which allows you to categorise all of your spending from your various accounts. Check it out.

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