Storm in a double D-cup

by Sarah Modlock

15 June 2005

Confession time. There are a couple of strange names that appear regularly on my bank statement. No, they're nothing to do with my Duran Duran fan club membership. They belong to standing orders and direct debits and I can't for the life of me remember what they are for. I keep meaning to investigate but because they are less than £15 each, I have struggled to get round to it. Tut tut.

The chances are that you have similar mysteries lurking in your bank account. As a nation, we pay out a whopping £13 billion a month by direct debits and standing orders and that's not even including mortgages. But nearly half of us don't keep tabs on electronic payments, leaving those few pounds each month or quarter to add up to a mountain of wasted cash.

Forgotten 'derelict debits' and 'standing disorders' cost us £427 million a month according to the Prudential. One in five of us have forgotten payments averaging £53 a month leaking out of our accounts. But one in 10 that the Pru spoke to found they were giving away more than £150 a month, sometimes for up to a year.

The most common forgotten payments are for old club memberships and irrelevant insurance policies. Extended warranties, unused gym memberships, roadside breakdown cover and magazine subscriptions are also culprits.

'Millions of people may as well take fifteen quid out of their bank account each week and give it to a complete stranger,' says Angus Maciver of the Pru. 'Electronic payments are highly convenient and effective for those that manage them properly,' he adds. 'But the large number of derelict debits and standing disorders are a graphic illustration of the negative impact of poor financial management.'

Power to the people

Used correctly, direct debits could actually save you money. According to Bacs, the payment processing service behind them, we could each save £187 each year by paying bills by direct debit. 'Direct debits continue to grow in popularity yet millions of people are still not taking advantage of the many benefits available,' says Bacs' Michael Chambers. Bacs reckon the biggest savings - of more than £100 a year - are to be made are on gas and electricity bills, with the maximum discount available for gas coming to £65, closely followed by electricity, with the highest reduction totalling £40.

But Energywatch says that the direct debit system is open to abuse by greedy utilities companies. In April, the watchdog asked the industry regulator Ofgem to investigate whether some power firms are too slow to refund customers who have overpaid by direct debit. Energywatch agrees that direct debit is the cheapest way to pay for power, but points out that one in 10 of the 40,000 complaints it received about poor billing related to firms dragging their feet over refunds of direct debit overpayment.

Switch your utility company here

Direct debits are undoubtedly easier for us but they are also a chance to improve cashflow and perhaps make money for many companies who can still decided to increase the amounts you pay even if you are in credit through overpayments. Some companies give customers a discount for paying direct but many do not feel the need and some even charge a fee.

So the trick is to make direct debits work for you. Yes, and me too. Start with a review of what you already have and investigate anything that doesn't look necessary. You can ask your bank for a list of all direct debits and standing orders or, if you bank online, simply log on for the list.

Apart from the convenience direct debit is one of the safest ways of paying your bills. Fraud rarely occurs because organisations using the direct debit scheme go through a careful vetting process before they're authorised, and are closely monitored by the banking industry. But if money were to be taken from your account fraudulently you'd be protected by the direct debit guarantee, and would be entitled to an immediate refund from your bank or building society. There are three main safeguards:

•  If the amounts to be paid by direct debit or the payment dates change, the organisation collecting the payment will notify you normally 10 working days in advance of your account being debited or as otherwise agreed.

•  If an error is made by the organisation or your bank or building society, you are guaranteed a full and immediate refund from your branch of the amount paid.

•  If any payment is made in error, you should contact your bank or building society who are responsible for giving you a full and immediate refund - even if the original error was made by the organisation collecting the payment.

Top tips for making the most of direct debits:

•  If you are offered a discount for paying your bills by direct debits, check this appears on your statement.

•  Ask your bank for a list of direct debits and check you still need them all.

•  Regularly check your statements to see the right amount is being debited.

•  Keep a record of any abbreviations - and strange names - used for direct debits so you will recognise them again.

•  Cancel any direct debits for services you no longer need, however small the amount of money. But make sure you also tell the service provider.