Savings, bank accounts, overdrafts: 5 ways your bank rips you off

Don’t let banks take advantage of you and leave your money in a worse position. These are five common tricks to watch out for.

Dealing with banks and building societies is an inevitable part of money management these days. 

The trouble is that doing so is not always straightforward.

Indeed, many times it feels like the way they operate is deliberately set up to make it more difficult to get a decent return on the money we make and set aside.

There are some particular rip-offs and mistakes that can leave us far worse off.

1. Get an account that works for you, not them

Bank accounts come in all sorts of different forms, making them appropriate for different sorts of customers. 

That’s why it’s really important to make sure that your choice of account is one that will truly work for you.

It can be easy to sit on the same bank account for years at a time, simply because it’s what you know. 

While bank account switching has become more common over the last couple of years, the truth is that there are significant numbers of people who have never switched at all, or have been stuck on the same account for a lengthy period.

So take some time to work out what sort of bank account suits your circumstances, and switch to one that delivers on that front.

If you need the safety net of an overdraft, make sure your account boasts an interest-free one, while if you’re looking to make some cash from your account, focus on those that pay high rates of interest on in-credit balances or cashback on your direct debits.

2. Don’t sit back on your savings

It would be great if banks treated all of their customers ‒ whether new or existing ‒ the same.

The trouble is that this isn’t really happening. When it comes to savings the best deals are often reserved just for those new applicants, as a way of attracting their custom.

They then rely on the apathy of savers around shopping around, so that they remain on less competitive savings deals.

For example, a study by Paragon Bank found that an incredible £250 billion worth of savings are in accounts paying less than 1%.

Given the top savings accounts are paying up to 5% at the moment, that’s a ridiculous situation.

As we have detailed previously, when rates rise some banks employ sneaky tactics to avoid passing a better rate onto all customers.

For example, some insist on customers actively asking for a higher rate, while others just launch a new ‘issue’ of a savings account, meaning savers have to move their money to benefit.

Monitoring the rate you’re getting on your savings does take commitment and time but it will pay off in the long run, leaving you better off financially.

Check out our run-through of the accounts paying the highest rates of interest.

3. Or your bank account!

It’s not just savings accounts that become less attractive over time, but bank accounts too.

There are plenty of accounts that offer an eye-catching deal, but which is time-limited.

At Nationwide for example you only get 5% on your balance for the first 12 months; after that, it drops to just 1%.

Similarly, there are accounts that provide a decent overdraft for the first year, but after that, you’ll pay the price for dropping into the red. 

That just emphasises the need to keep on top of what you’re getting and be ready to move the minute that deal comes to an end.

Alternatively, shop around for an account that might have slightly less generous headline offers that aren't time-limited.

4. Look beyond branches

There was a time when banks with branches on the high street were the dominant force, but that is changing.

Recent years have seen a succession of online banks, and even app-based banks, come onto the scene.

And these brands often look to do things a little differently from the online names.

A host of app banks like Monzo and Starling, for example, have made a name for themselves by levying no charges when used overseas, making them a fantastic option.

Even if you want to stick to the big names, it’s a good idea to look beyond what’s available in branches since plenty of firms offer exclusive deals which can only be opened online.

Given branches are quickly being closed by so many big banking brands, focusing online makes a lot of sense.

5. Loyalty doesn’t pay

Sticking to brands that we know is the easy option when you need to open a financial product.

If you’re hoping to open a new credit card for example, or need to take out a mortgage, then the first place to look is likely going to be the bank you already use.

However, that has to only be the first part of doing some proper market-wide research, rather than the extent of your research.

It’s rare for existing customers to get a better deal on these sorts of products, and even if you do get a discounted rate, there’s no guarantee that this will be an improvement on what you could secure elsewhere. 

Shop around properly and consider all of your options. If it turns out that the deal from your existing bank is the best one then great, but don’t rely on loyalty paying off.