Failure to switch current accounts is costing us dearly

Pricewatch bought cryptocurrency last week. We had absolutely no need for it and only bought a total of €30 worth of two virtual currencies we had never heard of just to see what it felt like to be at the cutting edge of personal finance. Frankly, it felt ridiculous.

Not more than 20 minutes after we had concluded our transaction using online bank Revolut, we went back to see how our investment in future money was getting on. Our €30 was worth €20. It brought us back to our days of losing money on dodgy poker machines in Salthill casinos.

Only minus the craic.

There ended our brief foray into the world of currency trading. We’re not overly concerned however as we had not signed up to the virtual bank to buy virtual money but to see what has attracted more than two million customers in Europe including 100,000 from Ireland to this new way of banking.

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It is not hard to see the appeal. We were able to set up an account using only our phone in minutes on a Sunday morning – something which instantly set it apart from other banks – and within a couple of days, once we had transferred actual money from an actual bank to our virtual bank, we had a contactless debit card winging its way to us. We will also be able to use Apple Pay, something Pricewatch’s bank has yet to get round to rolling out.

The Revolut app can do most of the things a regular bank can do and it comes with all sorts of high-tech wizardry which will allow us to move money from one currency to another at no cost, to set budgets and ceilings on our spending and to allow the card talk to our phone and block transactions taking place in parts of the world we are not in.

Weirdly, it can also tell you who among your contacts is also using the service and then you can exchange cash with them in real time. It is barely three years old, its monthly transaction volume has reached $2 billion and its customers are using it about 100 million times a month.

Another reason we signed up was because many readers and social media users have alerted us to the fact that it offers banking without the charges that other banks impose and that sounds appealing.

While we know banks provide a service – and a kind of important one too – and are entitled to make money from the provision of such a service, the level of charges Irish banks have imposed to repair businesses they broke themselves are sometimes well over the top, with the people who are hit hardest those who can afford it the least.

The highest fees and the highest current account costs occur when consumers have a large number of out-of-order transactions on their account such as unauthorised overdrafts, unpaid direct debits and over-limit or referral fees. The cost of running a current account where everything is in order all the time is frequently less than €100 a year. The average yearly cost if your finances are a bit of a mess is well over €200.

Some banks do make it possible to avoid charges – but only if you keep thousands of euro on deposit in your current account. And not many people can afford that.

The main reason for the lack of switching current accounts is inertia and the fear that something will go wrong

An Post has a smart current account that gives you cash-back in various retailers. If you sign up for Airtricity you get 10 per cent back – that could be €100 over the course of a year. It will also give you 5 per cent back on your Lidl shopping. That could be €250 a year. It charges €5 a month and then 60 cent per ATM transaction.

The key to reducing the charges you pay is seeking out the best value for money and according to the people at price comparison site bonkers.ie a customer could save more than €150 a year in current account banking fees by switching to one of the better value bank accounts.

Despite the fact that this is effectively free money, the level of switching current accounts in Ireland is incredibly low at 0.06 per cent while the level of mortgage switching, while increasing, is also incredibly low with around 500 mortgage holders switching a month, which equates to less than 1 per cent a year.

“What these figures show is that while the public and the media are never slow to criticise the banks, in reality the Irish show a huge loyalty towards their banks which is incredibly difficult to justify at times,” says Darragh Cassidy of bonkers.ie. “Because having bailed out the banks to the tune of billions, they repay us with the highest mortgage interest rates in Europe and some of the highest day-to-day banking fees and charges too.”

He suggests that the main reason for the lack of switching current accounts is inertia and the fear that something will go wrong. “Many consumers are concerned that their direct debits will get cancelled or lost during the switchover process and that they’ll miss important payments on their mortgage or energy bills.”

This fear is largely misplaced. The Central Bank has a switching code of conduct for current accounts which basically requires banks to have your new current account set up within 10 working days. And many banks will have dedicated switch teams in place to make the process easier and help you along the way.

“Regarding mortgages there’s also a level of inertia,” Cassidy says. “But here the main reasons are that customers don’t realise how much they could save by switching and they are afraid of how much effort it might take.”

A person who has a mortgage of €250,000 and paying a 4.3 per cent standard variable rate could save more than €250 a month or €3,000 a year by switching to the cheapest rate on the market. And while there are some up-front costs associated with switching mortgage provider, Permanent TSB and EBS will give you 2 per cent of your mortgage back in cash while KBC will give switchers €3,000, which should more than cover the costs of switching.

Cassidy agrees that it is “hard to argue that switching mortgage is going to be the quickest and easiest thing you’ve ever done but it’s not as bad as people think”.

Following a public consultation process, the Central Bank recently announced that it is introducing changes to its Consumer Protection Code to make it easier for mortgage customers to switch. This goes live in January 2019 and should hopefully see the level of mortgage switching increase further.

Who charges what

Apart from EBS’s money manager account which provides basic current account features, all the banks doing mainstream business in the State have brought in fees and charges in recent years.

AIB: This bank will charge you €4.50 a quarter as well as 20 cent every time you use your card in-store as chip and pin and online, and 35 cent each time you withdraw cash from an ATM. Consumers are also hit with a 20 cent charge every time a direct debit or standing order hits their account. If they have an overdraft they will be charged just over €25 a year as well as interest on the amount overdrawn. Setting up a standing order costs €4.50 and to amend one will cost €2.50.

If you have the temerity to go into an actual branch and speak to an actual person – if you can find one – expect to pay 39 cent. The bank does not yet charge for contactless transactions.

AIB fees can be avoided by keeping a minimum of €2,500 in the account at all times. Going below €2,500 at any time in a quarter will result in charges being applied for the whole quarter.

Bank of Ireland: This bank charges €5 a quarter as well as 10 cent every time a card is used in-store with chip and pin and online. A further 25 cent is charged for every ATM cash withdrawal. There is a charge of 10 cent every time a direct debit or standing order hits your account, and if you have an overdraft you'll be charged €30 a year as well as interest on the amount overdrawn.

In-branch staff-assisted transactions will cost you 60 cent. Bank of Ireland also charges 1 cent for contactless transactions.

Bank of Ireland does not charge account transaction fees if a minimum credit balance of €3,000 is maintained in the current account throughout the full fee quarter. There’s no avoiding the €5 quarterly fee.

Ulster Bank and PTSB charge a €4 monthly maintenance fee. After that, all day-to-day banking is free with both.

PTSB’s Explore current account also pays you 10 cent every time you use your card in-store or online, up to a maximum of €5 a month. This means you could actually make €12 a year off the account! The only downside to this account is that it doesn’t support mobile payments, which might be a big turn off to the younger generation. With the Explore account you’ll also receive cashback on certain bills that are paid via direct debit from the account meaning you could earn even more each month.

Top tips on how to avoid charges

1. Use contactless cards where possible. Right now Bank of Ireland charges only 1 cent per contactless transaction but 10 cent for chip and pin. AIB charges nothing for contactless for now, but charges 20 cent per chip and pin. No other bank charges for contactless.

2. Do as much of your banking online as possible. It's usually quicker, easier and cheaper. For example, an online transaction with either AIB or Bank of Ireland will cost you 20 and 10 cent respectively. Seeking out a human to carry out an in-branch staff-assisted transaction will cost you 39/60 cent. And you will have to actually go into a bank.

3. Look at the non-traditional online-only banks including Revolut and N26. The latter offers mobile, contactless, and chip and pin transactions free and you also get five free ATM withdrawals a month. There's no quarterly fee or maintenance fees either. They have a brilliant mobile app, support Apple and Google Pay, and allow you to open a bank account online in just minutes through the app. N26 has one million customers. It operates on a European Passport (a banking licence granted by the German regulator and the ECB). It is covered by the German deposit guarantee scheme and is regulated by the Central Bank of Ireland here for conduct of business rules. You can get paid into the account from Ireland and set up direct debits just like any other Irish bank account.

4. Most mainstream banks will charge you for withdrawing cash unless you meet their onerous fee exemptions. If you're buying something in-store, ask for cashback from the retailer so you're not charged extra at an ATM.

5. Does anyone use cheques anymore? If you do, stop. They are an expensive method of payment. Set up a direct debit/standing order or use your online banking to transfer money instead.

6. If the thoughts of actually switching bank account and getting all those direct debits and standing orders changed sounds like a lot of work, remember it's quick and easy to set up a new account with one of the "digital" banks such as N26 and Revolut and keep your main account open.

You can set up and open your new account online in minutes through their mobile app (just send them a selfie and copy of your passport through the app for anti-money laundering). Once the account is open, transfer a few hundred euro from your existing account into your new online account each month and use it for day-to-day spending and therefore avoid any chip and pin or ATM fees.

7. Don't gamble on crypto currency when you have no idea what you are doing. That is a mug's game.