Ditch Your Crafty Current Account!

Some banks are trying to ensure that customers won't gain anything from a reduction in bank charges. Here's how they're doing it... And how to stop them!

This article was first sent to Fools as part of our 'The Good, The Bad and The Ugly' email series.

When the Bank of England base rate was cut by 0.25% in April, you'd have expected banks to cut credit interest rates on their current accounts. However, a few banks took the opportunity to cut their credit interest rates by a lot more than 0.25%.

Perhaps rate cuts weren't just triggered by the cut in the base rate.....

So in this `The Good, The Bad and The Ugly' email, I'm going to look at which accounts were hit by the biggest cuts and highlight some of the best accounts out there today.

Is This Payback Time?

But first, why the big cuts in credit interest rates? Well, I suspect the continuing bank charges saga may have had something to do with it.

Last month saw millions of customers collectively cheering the news that the high court had upheld the Office of Fair Trading's right to review bank charges. I, for one, rejoiced at the ruling, having been recently slapped with a £48 charge by Halifax for going a pathetic £4 (yes, four) overdrawn!

This court ruling has by no means ended the bank charges saga, but it did make it all the clearer that banks need to find alternative sources to replace the income they received from penalty bank charges.

So maybe that background explains why credit interest rates on some accounts have been cut by more than 0.25%.

Three Crafty Current Accounts

Here, I've rounded up three crafty current accounts where your credit balance will earn you less.

Account	Balance Paid In	Previous Rate (Gross)	Current Rate (Gross)	Reduction	Date Of Change
Nationwide Building Society Flex Account	£1000 per month	3.5%	2.00%	1.5%	1/8/2008
Halifax High Interest Current Account	£1000 per month	6.00%	5.00%	1.00%	1/5/2008
Alliance & Leicester Premier Current Account	£500 per month	1.49%	0.99%	0.50%	1/5/2008

Source: Moneyfacts

These are pretty chunky cuts. The winners of the cutting contest, Nationwide, has effectively multiplied the size of the base rate reduction by five before passing it on to its customers. Yikes!

At the same time, both Nationwide and Halifax have hiked up the cost of being overdrawn.

Halifax has increased the cost of an overdraft by 0.60%, making the typical cost of an overdraft on their High Interest Current Account 19.5%. But Nationwide has gone one better, raising the typical cost of an overdraft by a whopping 3%, to 12.9%, from 1 June.

Perhaps most worryingly, because Nationwide's changes don't take place until later in the summer, details of these rather sweeping alterations are not listed on its website. So, a customer who signed up for a Flex account today could be very disappointed with the product a couple of months from now!

Bag A Better Deal

However, there are still some accounts out there that offer good rates on credit balances.

Here, I've rounded up three clever current accounts.

Account	Balance Paid In	Interest (Gross)	Restrictions
Alliance & Leicester Premier Direct Current Account	£500 per month	8.19%	Interest shrinks to 0.10% on balances over £2500
Abbey Current Account (Credit Option)	£1000 per month	7.72%	Interest shrinks to 2.47% on balances above £1000 (£2500 on transferred accounts).
Coventry Building Society First Account	£1000 per month	5.46%	Interest rate applicable on balances up to £250,000

Source: Moneyfacts

Stashing your cash in any of these means you'll get a better return on your balance.

It is worth noting that different products from Alliance & Leicester feature in both my `crafty' and `clever' tables -- and that Halifax, despite dishing out a rather hefty rate cut to its customers, still offers one of the best accounts available.

Even Nationwide has decided to keep interest rates at 3.5% for some customers (those crediting £1500+ to their accounts each month) -- so if this is you, you shouldn't lose out.

All this is proof positive that choosing the right current account can be a tricky business!

Moreover, it's important to remember that almost all good deals eventually come to an end. Most banks' rates are variable, and many of the juiciest offers around are for introductory periods (generally a year or so) only. That includes the three clever current accounts I mention here.

Ultimately, the best way to avoid a crafty current account is to shop around, and switch to the cleverest account you can when it's time to change.

That way, we might stand a chance of preventing financial institutions from making a possible bank charges victory into a banking costs defeat.

> Why not compare current accounts at The Motley Fool Current Account Centre?

More: Bank Charges Ruling Not Straightforward | The How-To-Get-Rich List |The Classic Current Account Con