Free Banking May Soon Be A Thing of the Past

The Office of Fair Trading (OFT) is expected to rule that overdraft charges (currently in the region of £30 a go) are illegal. Banks should not be making a profit out of these charges and most claim that they don't, however the administrative costs of a customer going into the red cannot possibly costs so much (especially in today's hi-tech environment). Those that are currently juggling their debts often end up paying more than one charge per month and bear the brunt of these brutal charges.

The newspaper headlines today suggest banks are already using this ruling to end free banking. However banks make a fair amount of money from this so-called "free" banking. The Sunday Times revealed that banks make £6.5 billion from current accounts - with three quarters of that coming from giving you, the account holder, a ridiculously small rate of interest. Banks use the money you have in your account to lend to others and charge interest on it. By comparison, the Times suggests that only £1.2 billion of this revenue comes from overdraft fees - the conclusion being that the banks can easily absorb the costs of the OFT ruling.

With this in mind, and especially if you are in debt, it is time to start thinking about your personal current account. Ask yourself "Is it time to switch?" It may be time to switch to another bank if you are always receiving excessive charges. Why not join a bank that offers a decent level of interest on current accounts. According to Which? Magazine, Halifax and Abbey, and Alliance & Leicester offer rates above 6% on the balance in the account. First Direct also offer a decent level of interest.

Action:
1. Find out what interest rate you are currently receiving from your bank.
2. If it is not a decent rate of return, carry out a little internet research and discover the best rates (soon the www.debtfreeandhappy.com website will have some of the best providers listed).
3. Switch everything over to your new account. Nowadays, banks take the headache out of switching. No longer do you have to contact each organisation that you have a direct debit with, the bank will do this for you.
4. If you have been subjected to ridiculous bank charges, challenge the bank now that you have your new account open. You can claim back any charges you have paid over the past SIX years. Write to your bank and ask for a list of all the fees it has levied. Got to which.co.uk/bankcharges and find Letter One which is a template letter you can use. BTW, The reason for opening a new account first is because some banks will close down your existing account when they pay out - even though the Financial Ombudsman has ruled against a bank for doing this.
5. Use the interest you gain from your new account to pay off more of your debts. Even if it is just .30p a month, it will start to make a difference in the long run. Also, use ALL the refunds you receive to pay off your existing debts - that way you pay less interest.
6. For FREE template letters on how to write to banks and get your money back go to www.penaltycharges.co.uk or www.which.co.uk/bankcharges

Whilst we can only wait and see what happens to the free current accounts, but be rest assured, I'll keep www.debtfreeandhappy.com Readers posted.