BrilliantWithMoney

The banks have suffered a lot of damage to their collective reputations and finances lately. A combination of court cases related to unfair banking charges and taxpayers having to bail them out has reduced or removed what trust we might have had in these financial institutions.

Now Which? has reported about a sharp increase in elderly people complaining about being missold investment products by bank advisers. As they attempt to rebuild their capital positions, it seems more likely that the banks will look to extract cash from their customers at every opportunity.

There are several things you can do to ensure you play it safe when dealing with the banks. Here are six things to watch out for to make sure your dealings with your bank are more financially advantageous for you than they are for them.

1 – Understand their limitations and motivations

Banks are businesses and their primary commitment is to their shareholders. Because of the relationship we tend to have with our banks, it is easy to think that they are always looking out for our best interests. Deal with them with from a more cynical perspective and you reduce the risk of becoming a bank sales victim.

In the vast majority of cases, the ‘advice’ you get from your bank will be either tied or multi-tied. This means that your bank financial adviser can only advise you on their own range of financial products. You do not get the benefit of the adviser shopping around for the best deal and you could well end up with an expensive, potentially unsuitable financial product as a result.

In fact, it gets worse than this. Bank advisers are often targeted to sell specific financial products. They will work hard to identify customers with cash on deposit and then convince them to invest that money instead, for the prospect of a higher return. Bigger returns always go hand in hand with bigger risks, but this might not be apparent when the bank adviser is pushing the sale.

The recent warning from Which? described complaints from elderly investors who were sold Investment Bonds thinking they were savings bonds with no risk to their capital. It wasn’t until these people received their first annual statement that they saw how much money they had lost.

Banks might call what they have to offer financial ‘advice’, but in reality it is financial sales. The only way to ensure impartiality when it comes to financial advice is to work with an independent financial adviser and pay an explicit fee for the advice, so that commission cannot influence the recommendations being made.

2 – Stay in the black

The ongoing unfair banking charges saga could still take some time to resolve. We know that the Office of Fair Trading (OFT) has already ruled these overdraft charges to be unfair, but the big banks are appealing this decision in the courts in an attempt to avoid having to refund customers.

Some overdraft fees were considered to be unfair because they cost the banks no more than £2.50 a time to process, but were charged sometimes in excess of £35 a time. This meant that the banks were profiting from a penalty fee, something which is not permitted under English law.

What is important to consider is that these unfair charges were only applied to banking customers who went into their overdraft. Go into the red within your bank account and you should expect to get charged. Whether that charge is fair or unfair, it is going to cost you money. Until the unfair banking charges case is finally resolved, you should expect a trip into your overdraft (even for a short amount of time) to result in a hefty charge.

Make every effort to stay in the black and you will avoid unfair banking charges. This means proper budgeting and cashflow management to stay in positive territory, but in this age of Internet banking it is simple to get a quick update of your bank balance before spending money that might tip you over the edge into the red.

3 – Read the small print

As boring as it sounds, reading the small print from your bank is an essential step before entering into any arrangements with them. Never sign up to something they recommend on the spot. Take the documentation away with you and take the time to read it carefully.

A golden rule when it comes to money management is to never sign up for something unless you understand it in full. The banks are generally quite good about being transparent with their product terms, but they can occasionally hide a nasty surprise in the terms and conditions of an account or investment product. By reading the small print, and getting a second opinion if necessary, you can prevent stepping into an unsuitable arrangement and avoid the hassle of getting out of it at a later date.

4 – Mix it up a bit

People tend to be very loyal to their banks, and this can result in buying a whole raft of products or services from one institution. A single provider rarely offers the best value across every different area. Putting all of your financial eggs in one basket is a poor financial move and one that you might come to regret in the long term.

Use your bank for what they should be best at – banking! The associated services they have to offer, such as financial advice and stockbroking, are usually provided with better value and suitability by other entities who specialise in these areas.

An added benefit of mixing it up a bit and not relying on your bank for every area of your financial life is that you can more easily walk away if things turn sour. Customers who have their current accounts, savings accounts, credit cards, mortgage, personal loans, investments, pensions and life assurance with one bank can find themselves in a tough position if they fall out with their bank over poor service or excessive charges on one account.

5 – Check your statements and stay organised

Banks sometimes make mistakes. Never rely on them to always accurately debit and credit your accounts. This means keeping good records and checking your bank statements on a regular basis. If you keep all of your receipts, cheque stubs and payslips, it should be relatively straightforward to quickly tick off each entry on your bank statement.

With the increase in popularity of Internet banking, many customers now opt not to receive hard-copy bank statements through the post. This should not remove the practice of checking your statements for accuracy. If you use Internet banking you might want to download your statements on a regular basis so you have your own record of these transactions rather than having to go online when you need access.

If you spot an error then flag it up to your bank promptly and insist they take action to rectify it. If the mistake is in their favour, present the facts and chase your bank regularly for a satisfactory conclusion. If the mistake in is your favour, do not assume it will not be spotted. Be as determined in your efforts to sort out the mistake and express your dissatisfaction with the bank for making it in the first place.

6 – Think twice about that ‘premium’ account

With the revenue from excessive overdraft charges looking increasingly ‘fragile’ for the banks, they will need to find their profits from other sources. This could result in the end of so-called free banking, and it is likely to encourage the banks to push their premium accounts.

These are current accounts that come bundled with a whole load of added value features, including things like travel insurance and breakdown cover. These special features come at the expense of a monthly account fee which can seem quite reasonable when held up against the list of goodies you get with the account.

In practice, the banks rely on their customers to believe the different elements of the package offer good value without actually checking this out for themselves. When considering a premium current account, think about the elements you actually need or can save money on if you already have them. Cost out the various elements you need or want separately to make sure the premium account offers good value.

Martin Bamford is site editor of BrilliantWithMoney and a chartered financial planner at Informed Choice.