Is it time to switch to save on banking charges?

It may not have made the recent election manifestos, but banking charges are another insidious drain on our finances that were unheard of pre-crisis.

But, while competition is still not strong enough to warrant free fees across the board, there are signs that banks are improving their offerings, with reduced fees now easier to come by, and some banks – such as Permanent TSB’s € 50 switching offer – launching a more aggressive campaign to attract switchers.

Typically, Irish people are lazy when it comes to switching current accounts – just 5,400 out of the country’s five million current account holders did so in the first six months of 2015, for example. But a little bit of effort can reward you so it’s worth considering. So if you’re in the market for a switch, what are some of the better offers out there?

If you’ve a mortgage

Many of the banks are now offering their best current account deals to either existing, or new, mortgage customers.

It’s one way to avoid losing your mortgage customers. Another way, of course, is to cut variable rates, but it seems the banks are opting for the cheaper option.

AIB for example, is now offering free banking to 90,000 of its existing mortgage customers, provided that mortgage repayments are made by direct debit from an AIB current account. Last year, it offered free banking to new mortgage customers.

If you’re looking to get a mortgage

If you’re in the market for a new home this year, you may currently be checking out what the various banks are offering. But if you’re really keen to get the best rate, you should also consider moving your current account.

Take KBC Bank for example. It offers first-time buyers a discount of 20 basis points (0.2 per cent) on the interest rate charged over the life of the mortgage for current account holders. This means that it currently has the lowest standard variable rate on the market, at 3.65 per cent, while a similar discount applies to the bank’s one-year fixed-rate product. And, if you think that a 0.2 per cent discount isn’t enough to make you switch, you might need to think again.

On a 30-year mortgage of € 250,000, your monthly repayment will be € 1,172 on the standard rate, or € 1,143 on the discount rate. Over the course of 30 years, this discount would add up to interest savings of some € 10,000

O

ver €1,500 in your account

If you get your salary, or a similar payment, deposited into your current account each month, you may be able to find the holy grail of a fee-free current account.

With Permanent TSB, for example, provided that a lodgement of € 1,500 is made each month, quarterly fees of € 12 will be waived. For many people, this lodgement will equate to their pay check, which makes free banking a reasonable goal for customers of this bank. Not only that, but the bank will also pay interest at an attractive rate (in the current environment) of 1 per cent on any balance up to € 1,500 in a current account.

With other banks, however, you need to keep a certain amount lodged in your account each month – money which, if you have it, could be earning more on deposit elsewhere.

Ulster Bank, for example, moved from a free banking model in 2014 to a new system, whereby to avoid charges you have to keep a minimum balance of €3,000 in your current account in order to avoid monthly charges of €4.

With AIB, you can also avoid charges of €4.50 a month plus transaction charges, such as a charge of 35 cent every time you withdraw money from the ATM. But, to qualify, you need to keep € 2,500 in your account every day, and if you miss a day, you will be stuck with charges.

AIB-owned EBS offers a combination of the above – ie you need at least € 1,500 lodged to your account every month, or you need to keep a minimum balance of €500.

However, it doesn’t offer completely free banking, and even if you meet these conditions, you will still only save yourself the cost of five withdrawals a month (ie €1.50).

If you're a Bank of Ireland customer, there is no way to avoid current account fees; the only thing you can do is to try and keep them in check. One way of reducing fees is to avoid the quarterly fee, which comes out at € 20 a year. To do this, you must keep a balance of € 3,000 in your account. However, you will still be stuck with other charges, including 0.25 on ATM withdrawals, € 0.10 for a debit card purchase and € 0.10 for an internet transaction.

Remember that if you keep a significant lump-sum in your current account in order to avoid, or mitigate, banking fees, you could be losing out on returns elsewhere. While PTSB, as mentioned, offers to pay 1 per cent on money in your current account, other banks won’t (although KBC does offer to pay 0.01 per cent and EBS 0.03 per cent)

This means that the opportunity cost of keeping € 3,000 in your current account, rather than a savings account, works out at about € 30 a year based on a return of 1 per cent. And avoiding fees depends on you maintaining this balance – get your sums wrong or face an unexpected withdrawal and you will be stuck with fees for that quarter.

If you’re tech savvy

Have you heard about the new entrant to Ireland’s current account market? Well Number 26 is an online subsidiary of German bank

Wirecard Bank

, (regulated by the

German Federal Financial Supervisory Authority

, BaFin and a member of the Deposit Protection Fund of the Association of German Banks), and it already has 130,000 users. It launched in

Ireland

late last year, and it offers a current account specifically for the smartphone, and allows users to send money to friends via text message or email with just a few clicks.

It is linked with a MasterCard that can be used worldwide to make purchases or receive cash at ATMs without incurring fees, or foreign transaction fees. You can open a bank account via video-identification in just eight minutes

According to a spokesman for Number 26, the account is developed with a “digital native” in mind.

“That means users can accomplish all their banking via smartphone, no matter where they happen to be,” he says, adding that this includes transferring money into another currency with TransferWise, sending a P2P payment to a friend (MoneyBeam) or even blocking the card should it go missing.

“Users also receive push notifications for every transaction, which not only protects them against fraud but gives them an immediate overview of spending,” he says.

And Irish consumers seem to have taken to the new app. Last December, it launched in Ireland, Spain, France, Italy, Slovakia and Greece, and while the bank won't disclose specific numbers of users in Ireland, according to the spokesman, Ireland is the strongest market per capita of these six countries.

“We feel this is a statement that the traditional banks in Ireland have failed to meet the demands of the modern, digital consumer,” he says.

Flexible overdraft

It’s worth carefully considering the current account options that are on the market if you are prone to going overdrawn on your account. Of course, while this may preclude another bank from taking on your business, you may find someone willing to take you – and your expensive debt – on.

First off, EBS doesn’t allow overdrafts, so this won’t be of interest to you.

For an authorised overdraft, Ulster Bank imposes the highest interest rate, at 15.55 per cent, while a typical set up/renewal fee is € 25 (BoI charges € 30).

If you find yourself running up unauthorised overdrafts, these can get very expensive very quickly. Both AIB and PTSB, for example charge an extra 12 per cent on unauthorised overdrafts, equating to a total interest rate of 23.85 per cent and 27 per cent, respectively.

If you travel

a lot

If you spend a lot of time out of the country, bank charges can really start to bite.

If you’re travelling inside the eurozone, it’s not so bad, as the usual charges will apply on purchases with your debit card. So, a € 50 restaurant bill paid with a debit card will attract a charge of 20 cent with AIB for example, whether it’s in Cork or Corfu. Contactless payments are also economical, with AIB imposing no charge on these payments until August 26th, 2016.

When it comes to ATM withdrawals, the same charges as at home should apply; unless of course, an additional charge, which could be of the order of about € 3, is applied by the local operator of the ATM.

If you’re a frequent visitor to the UK or the US however, organising your money can be a trickier affair, as you’ll typically pay a charge of up to about € 11.43 on a non-euro purchase or ATM withdrawal. Not only that, but you may also find yourself stuck with not so attractive exchange rates.

One option is An Post’s Post FX card, which operates just like a chip and pin card, but you pre-fund it with your desired currency (sterling or US dollar) and your desired amount. The card can be used at any British or US retail outlet, tourist attraction, restaurant or ATM that displays the MasterCardAcceptance Mark. The card is free and you can fund it with between $130 and $9,000, or £85 and £5,000. Using it to withdraw money will cost you $2.50 for each ATM transaction in the US, or £1.50 in the UK, while purchases incur no charge. Where the card may fall down is exchange rates however, as you may be restricted in the rate you are offered and won’t be able to shop around.

Looking outside of Ireland for a solution when travelling may also make sense. Revolut for example, is an app which allows you to send and spend money around the world – and doesn’t charge you for doing so. It says it makes its money by charging merchants a fee every time its card is used.

You simply set up the account by downloading the app and transferring money from your bank account to fund it, and Irish residents are eligible to create an account. You can also get a MasterCard with the account, which allows you to make instore purchases as well as withdraw money from an ATM.

The real advantage of such a card when travelling outside the eurozone is that it promises to give you the real exchange rate – ie the interbank rates – on foreign currency. With no spread, you should be able to access much more attractive currency exchange rates than you would have otherwise. It suggests that when you spend £500 in London, for example, by using a Revolut card you will save € 66.29 on the transaction. Remember, however, that free ATM withdrawals only apply to the first £500/€650/$700 you withdraw each month – after that a fee of 2 per cent will apply. The card can also be useful when it comes to online shopping, particularly if you're a frequent shopper on Amazon in the UK or US for example, or other sterling/dollar sites, as you will most likely get a better exchange rate with Revolut than you would with the retailer. It's not just the banks: Government charges too From January 1st, new government charges apply to financial transactions. Out is the old €5 stamp duty on ATM/debit cards and in are new per-transaction charges.

This means that each time you withdraw money from an ATM, you will be charged 12 cent, although the fee is capped at €5 (42 transactions) a year. And bear in mind that you don’t pay as you go; the duty is collected in arrears on December 31st of each year.

A heftier fee of €30 applies to credit cards and is deducted from your account on April 1st each year.

Finally, don’t think that signing up to an online foreign player will allow you to skip stamp duty. The up-to-€5-a-year charge applies to all Irish residents with debit cards, regardless of where they originated. According to the Revenue Commissioners: “All cards regardless of the location of the issuer are liable if the cardholder has an address in the State.”

If you’re still a fan of cheques, remember that a book of 40 cheques will cost you €20 in stamp duty alone, with additional bank charges on top of this.