Your current account gives you instant access to cash, but what more could it be doing?
IF you are putting together your financial to-do list for 2017, will you please make sure that reviewing your current account is on it.
My two reasons for asking you to do this are:
a) So you can get a better return for your money on deposit
b) Eliminate, or at least reduce, charges that are being applied to your account
According to the Central Bank in its most recent consumer protection bulletin there is c. €22.1 billion in current accounts in Ireland. I meet people all the time, who have too much in these accounts earning little or no interest.
With interest rates as low as 0.01%, in some cases it is actually costing people money to have it on deposit, because when you factor in DIRT and inflation, the purchasing power for their savings is going down in real terms.
For example, if you had €10,000 on deposit and it was earning 0.01% and inflation was running at an average 0.30% throughout the year, then in 12 months’ time your €10,000 would have gone down in value by €29.39.
Not a life-changing amount, but it’s the opportunity lost by not investing in other, better yielding accounts that you are missing out on. A client of mine moved funds from his current account 18 months ago to a different capital guaranteed product and has earned 20 times more in interest in the process. That €600 in interest he receives each year is able to pay for his home and car insurance premiums.
My advice is to leave an amount in your current account, with a small buffer if you want to, that avoids having to pay fees, but with any excess, move it out into better yielding accounts.
People complain about fees a lot, but few take action. The Central Bank confirmed that in the first six months of this year, just 0.06% of all current account holders changed providers. With 5.1 million current accounts in Ireland, this means just 3,600 people have switched.
Here is the striking thing for me, because if conditions for avoiding bank fees are not met, and if the average cost of operating a current account in Ireland is c. €90 pa, this means, current account holders in Ireland could be paying as much as €459,000,000 annually in fees.
The majority of banks apply charges and fees for the use of their current accounts and with some there is no way of escaping them e.g. quarterly charges. However with other providers, there are ways of minimising and avoiding these types of charges altogether
I am going to look at each and comment on their fees and how you can avoid paying them.
Their Explore current account has a €12 quarterly account maintenance fee, but it offers you cash rewards like 10 cent for every time you use your debit card to buy something. So, you would have to use it 40 times each month to cancel out the €4 monthly charge.
They charge a monthly maintenance fee of €4 and to avoid this, you need to keep an account balance of at least €3,000 in your account at all times in the month – anything below that and you will incur the monthly fee.
They charge an admin fee of €4.50 per quarter but you can avoid this and other fees charged by keeping a minimum of €2,500 in your account at all times. If you go one cent below this at any time in a quarter, charges will apply retrospectively for the entire quarter.
Bank of Ireland
They have a quarterly maintenance charge of €5 and impossible to avoid this regardless of what is in your account. On top of this, they will apply a fee depending on the type of transaction you make but you can avoid these fees if you keep at least €3,000 in your account at all times in the quarter.
KBC offers free banking to new and existing customers, but that has a lodgement criteria. If a customer avails of the Extra Current Account and lodges at least €2,500 per month they will not be charged any day to day banking fees or any ATM/cheque processing fees.
Otherwise, with a Current Account, a quarterly €6 maintenance fee will apply and if the daily balance in your account goes below €2,000 then you will be charged a fee of 30 cent for ATM transactions and for every cheque lodged in the quarter.
They have an excellent current account for people who move their mortgage to them and have their salary mandated to their account. Because if you do, you can avail of a 0.20% discount on their mortgage rates, and this saving over the lifetime of a mortgage could run into the thousands.
So, is it easy to move providers? I switched about 18 months ago, and my experience was simple, easy and stress free. Under a code of conduct on switching current accounts, developed by the Central Bank which came into effect in 2010, what has to happen when a person contacts their existing bank is that they have to provide you with a switching pack.
In this pack is an account transfer form that you need to sign and it indicates what direct debits, standing orders etc. you wish to continue to be paid from your new provider. You give this form to them who will then send this account transfer form to your existing bank. Your new account provider must then facilitate setting up the new direct debits etc. that you have already in place, and transferring the balance from one to another as well if you so wish. And under the code, the switch has to be completed within 10 days.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at firstname.lastname@example.org or www.harmonics.ie