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Your Money > Budgeting Articles > Four fiendish financial...
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By Donna Werbner
There's nothing we like better at lovemoney.com than naming and shaming the banks which sneakily try to swindle you out of your hard-earned cash. Here are four particularly fiendish tricks to watch out for - and how to avoid the financial stinkers that play them. 1) Credit card creeps Have you ever wondered why so many credit card providers allow you to pay 0% interest on balance transfers? If you reckon it's out of the goodness of their ever-so-fantastic plastic hearts, then you're dead wrong. To make a profit out of you on the sly, cards offering 0% interest rates have often got a nasty trick up their signature strips. It's called negative payment hierachy - and it forces you to pay off your cheap, interest-free debts first, allowing your expensive, interest-bearing debts to fester and increase. Goodies: Nationwide and Saga cards operate a positive payment hierarchy, so their cards are safe to use for both purchases and balance transfers. Alternatively, this Halifax card and this Bank of Scotland card offer the same period for 0% balance transfers and purchases, effectively freeing you from the negative payment hierarchy trap. Baddies: Every other credit card provider! So if you want to get a 0% card from any of these credit card creeps, make sure you get one 0% card for balance transfers and a different 0% card for purchases. 2) Mortgage monsters Once upon a time, in a far-flung era when no one had ever heard of a toxic asset or a sub-prime loan, banks were all privately-owned, bank runs were unimaginable and most mortgage lenders dutifully observed a certain unwritten rule about their Standard Variable Rates (SVRs). This stated that a drop in the base rate would soon be followed by a similar-sized drop in a lender's SVR. Sure, sometimes a couple of lenders were a bit naughty and took more than a month to pass on a cut or sometimes they didn't pass it on in full. But among the top 10 lenders, few allowed their SVR to drift more than 2.5% above the base rate. Then came the biggest credit crunch ever to munch on a homeowner's lunch. Result? A record-low base rate of 1% - and the SVRs ranging from 3% to more than 5%. Goodies: Lloyds TSB has passed on in full every single rate cut since October - the only lender to do so. Its SVR is currently the lowest at 3%, an honour it shares with lovemoney.com favourite Nationwide. Baddies: Among big mortgage market players, the worst offenders are Barclays (formerly Woolwich) and Alliance & Leicester, both currently offering SVRs at 4.99%. Barclays has only been passing on every other rate cut, while A&L has failed to pass on the full base rate cut five out of six times. And to add insult to injury, while they've been raking it in from borrowers, these lenders have cut their rates for savers! Shame on them! Smaller lenders are behaving equally badly. One reader wrote in to ask me to give a public roasting to Yorkshire Building Society, which also charges 4.99% on its SVR, and another wrote in to complain about Chelsea Building Society, which is charging a whopping 5.79% SVR! Nasty. 3) Savings snakes You should always try to keep three months' salary in an instant access savings account, to act as a 'cash cushion'. This is so to soften the blow of any emergencies which may suddenly land on your head, out of nowhere, in the middle of an otherwise remarkably routine Tuesday. You might think saving up this money is the hardest part. But once you've won this battle, you must go on a quest for a true instant access account. This is a lot more difficult than it sounds. Many accounts claim to offer instant access - but if you try to withdraw your money when you need it, you may get a nasty shock. Often, the overall rate will be reduced or you'll pay a penalty of a month's interest. So check the small print. A true instant access savings provider always allows penalty-free withdrawals whenever you want access to your cash. Goodies: There are absolutely no restrictions or penalties for withdrawals with the current market-leader, the Egg Savings Account, which pays 3.35% AER, and an ING Savings Account, which pays marginally less, at 3% AER. Baddies: Alliance & Leicester is notorious for offering savings accounts where you lose 30 days' interest if you make a withdrawal - although its Online Saver Issue 4 (which also pays 3% AER) is a welcome exception to this rule. So Sainsburys garners the biggest Savings Snake award, currently advertising 3% AER on its internet saver - but check the small print. The rate drops to 1.25% if you make a withdrawal. 4) Current account cheaters When you stick your money in a bank, the bank attempts to make money out of you by lending your money out to other people or investing it. Of course, as we know from all the recent troubles banks have had, some of them are not very good at this. But that's by the bye. The fact is, your bank is using your money to try to make money for itself - so I think it's absolutely outrageous that the interest rate on many current accounts is a great big gaping ZERO. Goodies: Alliance & Leicester is the current account market leader, paying 6% on its Premier Direct current account, while Abbey is following close behind, paying 5.5% on its 'in credit' account. However, both these rates only apply to balances up to £2,500 - after that, the rate drops dramatically (to 0.1% and 1% respectively). Baddies: Halifax, Bank of Scotland, Bank of Ireland, Intelligent Finance, Lloyds TSB (on its classic account), and Natwest (on it current account plus) all pay just 0.1%. Even worse, some of the biggest banks - Barclays, First Direct, Nationwide and the Co-op - all pay nothing at all! Yes, I mean zero per cent! However, you may feel the Co-op's ethical policy makes up for this lack of interest, as does the mutual ethos associated with building society Nationwide. Similarly, many lovemoney.com readers have told us that the good customer service First Direct provides is worth sacrificing interest for - and it does offer you £100 to switch in the first place. So the number one big baddie award in this category goes to Barclays, which you may recall also won a Mortgage Monster award. Boo hiss! Good luck avoiding these stinkers and keeping your cash exactly where it should be - in your own two hands! Useful links: |
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