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Financially, I lead a bit of a double life. As you’d expect for the personal finance editor of the FT, I am pretty good with my money. Sadly, my husband is not. But his pain is my gain.
All the important stuff like our investments, pensions, savings and bills is dealt with jointly (by me). The only thing he has to manage is his day to day cash flow. More often than not, he ends up being overdrawn for several days before payday. It’s never by very much, but it’s a longstanding bad habit that he finds hard to break.
Yet it is one that has become increasingly expensive. A few years ago, his bank charged him a percentage fee for going overdrawn within his authorised limit. As he was never overdrawn by very much, this bad habit might have cost him a pound or two a month — hardly worth us having an argument about.
Then his bank changed the rules, and wrote to him (he never even opened the letter as he thought it was yet another credit card offer) saying the overdraft fee was now £1 per day, no matter whether he was overdrawn by £1, or £500. Since then, he’s been lining their pockets.
There have been months when he’s dipped into his authorised overdraft by a few pounds for a single week, and he’s been charged £7 — a higher interest rate than the bad old days of the payday lenders. Of course, I jump up and down when I see his bank statements and threaten to burn £20 notes in front of him until he downloads a banking app on his phone so he can keep better track of his balance.
But like millions of others, he suffers from financial inertia. This problem isn’t bad enough for him to do anything about it by changing his bank to get a better deal.
I, on the other hand, have a great deal on my own current account. I don’t have to pay a monthly fee, and I get all kinds of freebies including annual Zipcar membership, cinema tickets, free daily coffees in Patisserie Valerie and money off in restaurants because I am a good customer, have linked savings accounts and a credit card, and I am never overdrawn.
On Tuesday, the Competition and Markets Authority called for unauthorised overdrafts to be capped, but as my husband’s example shows, even authorised borrowing costs more than you might think.
The CMA said that “heavy users” of overdrafts could save as much as £260 a year by switching bank accounts. This is the kind of hard evidence that might propel him into action — but I know from experience that when you try to compare the overdraft charges for different accounts online, it is actually quite difficult to do.
Firstly, overdrafts are typically advertised as “subject to status” which means you have to apply for one after you’ve switched your bank account and there’s no guarantee how much you’d get.
Secondly, all the banks offer different deals. Many catch your eye in the online comparison tables by offering an “interest free overdraft” for several months, or even a year. But then you’d have to switch again to avoid the basic charges shooting up. Seeing as my husband has not switched banks for the past 30 years, this strikes me as unlikely.
Others display an annual percentage rate (APR) of what you’d get charged. Some offer you interest free overdrafts on the first £200, but then if you go over that, will apply a punitive rate of interest on the whole balance (ie including the first £200) until it is cleared. And others will give you £200 interest free if you pay a monthly fee ranging from £6 to £15 for a load of other stuff that you might, or might not, need. So what’s the best deal? It seems wherever you turn, there’s a catch.
Does it bother me that people who are not “good with money” like my husband are subsidising the bounty I receive from my own bank? Massively so. Especially in the case of older people, or those who lack internet access who are prevented from switching easily. But refusing to take the freebies on offer would not change how the system operates — and the same forces are at work regardless of whether consumers are looking for deals on a bank account, broadband or electricity.
For example, I make sure I change our broadband deal every 18 months as new customers are always rewarded with better offers than loyal ones. This is a lot of hassle, but it keeps the bills down. Similarly, the power companies are all keen to offer you their latest “fixed price tariff” because if you’re not hot on changing it again after a year, it will drift up to a much higher rate. It is a pain to keep on renegotiating these things. But the reward is paying less for the services you receive.
Would I like the system to be completely overhauled so people didn’t have to waste hours of their lives switching suppliers to get a better deal? Yes. Would I be prepared to pay a marginally higher price, and relinquish all the freebies for this to happen? Of course. But it seems this is not the direction of travel for market regulators, or the companies providing these services.
As for my husband, if he can’t be more organised with his finances, then he must resign himself to paying out between £5 and £10 a month for his overdraft. And I will think of him fondly as I order my free skinny mocha, watch a film and hire a car to drive myself to an expensive restaurant with a discount deal knowing that ultimately he is the one picking up the tab.