Free banking gone but you can still avoid costs

Leaving a large(ish) sum in a current account – more than you need to meet your day-to-day bank transactions – is not a good idea. First, you don’t earn any interest.

Leaving a large(ish) sum in a current account – more than you need to meet your day-to-day bank transactions – is not a good idea. First, you don’t earn any interest.

Second, it isn’t a very secure thing to do, especially if you use an ATM card on the account or a combined debit/credit card If you lose your card to professional hackers, they may be able to access the money sitting in the account, even without you PIN number.

Despite both these very good reasons, Bank of Ireland is that latest bank to require that you do exactly this – leave at least €3,000 permanently in your current account – if you still want to avail of free banking with them.

Bank of Ireland is just the latest bank to tighten up the free-banking conditions; their intention is clearly to discourage the very idea of free banking. Very few ordinary working people have the €3,000 to spare and anyway, nearly everyone knows (or should know) that there are better accounts even in Bank of Ireland where a spare €3,000 should be lodged so that it will attract some interest.

There’s only one bank that offers any semblance of free banking for customers any more and that is Ulster Bank, but even they will be bringing in similar charges to the other main banks from next summer (2013). They’d intended to do so this summer, but their computer melt-down intervened and as part of the compensation package they put off the new account charges for a year.

In fairness, the banks have a point when they say that free-banking is no longer affordable. Despite the tens of billions in bailout funds and 100% state guarantee of their deposits – all picked up by the taxpayer – the banks remain at risk of further losses as assets that backed loans keep devaluing and lending risks remain high.

The Irish banks simply cannot afford not to charge for services such as ATM transactions, direct debits and standing orders, etc.

No one wants to pay the banks a penny in light of the horrific bailout and their irresponsible lending practices of the last decade, but in even in the ‘good’ years the average, relatively busy personal account user was unlikely to incur a fee and charges bill of much more than €100 to €120 a year. Doing your banking online cut that cost considerably, and still does.

The idea that the banks are a public service is simply wrong – they may be an important public resource, but their primary function as private companies (until recently) was to deliver profits to their shareholder…and for AIB, ESB, PTSB and IBRC, the creature that evolved from Anglo Irish Bank and Irish Nationwide, the shareholder is now a busted state.

If you want to reduce your banking costs to the bare minimum, you can check with your bank to see exactly how cheap the cheapest online bank account will cost. (My son’s basic NIB one costs him just €20, while mine, the Prestige account that includes a generous overdraft limit, travel insurance, access to airport lounges and even a reduced borrowing rate, only costs me €125 a year, including all banking transactions.)

Not everyone is prepared to do their banking online, especially older people. New technology has revolutionised the way we pay our bills, and there is no going back to the era of multiple banks on our town and city high streets, but adjusting to these changes can be very daunting.

If you do want to learn how to use a computer and e-bank, check your local library and community centres for basic computer and internet courses for older people. Your bank might even schedule a few classes.

If you are unable or unwilling to go the e-banking route but still object to paying higher charges for a paper-based bank account, you can always try to reduce your costs by opening an entirely charge-free post office or credit union account.

You won’t have access to a credit or debit card or a chequebook (which are disappearing of their own accord anyway) but you will be able to have your pension or salary paid directly into it and can set up direct debit and standing order payments and enjoy other bill-pay services.

Finally, a very good way indeed to pay all your bills – and have access to cash – is to use your credit card in the most cost effective and strategic way.

By paying everything with your credit card – mortgage or rent, utilities and insurance, food, petrol, bus tickets, school books, clothes and entertainment, travel – even your income taxes if you have to file and pay them once a year on October 31, and then clearing the huge bill by your required payment date, not only will you enjoy rolling 56 days free credit, but you will not incur any interest charges at all.

(Cash withdrawals are the only transaction that attract instant daily interest, but you can even time them close to your payment date to pay as little as possible.)

Few people here ever bother to utilise this amazingly good value banking ‘service,’ perhaps because few Irish cards carry ‘bonus’ or cash points, and it does require the necessary income to be in the credit card account every month or significant interest penalties and surcharges will arise, but it might just be the most convenient and least expensive way of all to run your personal finances.

The National Consumer Agency (www.nca.ie) lists the best and worst priced current accounts on its website.

jill@jillkerby.ie