Slash your overdraft costs and get ‘free’ cash: how to get your bank and savings into shape – Source: www.theguardian.com

Don’t get stung on overdraft costs

Authorised overdraft costs can vary dramatically. Many banks have overdraft calculators on their websites, so log on and compare what your bank charges versus what you would be charged if you took your custom elsewhere. But can you switch your current account if you are overdrawn? The answer is yes, says the Current Account Switch Service (Cass). However, you will need to agree any overdraft you require with your new bank. Alternatively, they may be able to provide facilities to help you pay off your existing overdraft.

Some current accounts offer free overdrafts, within certain limits. First Direct’s current account has a £250 interest-free overdraft on an ongoing basis. Nationwide’s FlexDirect account offers an interest-free overdraft facility of £1,200, but only for 12 months. In both cases, the standard interest rate is 39.9% a year.

Before you make a decision, check the details and requirements and look at the account as a whole. You may need to pay a minimum amount into the account each month to qualify for free borrowing, or there may be a monthly fee. You will also be subject to a credit check.

Take advantage of ‘free cash’

There’s “free money” on offer for those looking for a new current account. First Direct is offering new customers a £175 welcome payment if they switch using Cass. These deals come and go – Nationwide was offering £200 until just before Christmas – so it’s worth keeping an eye out.

It is straightforward to switch bank accounts using Cass, and you can do so as often as you like to bag the freebies on offer, but bear in mind that your applications may show up on your credit record. This could cause a few problems in the short-term – if you are planning to apply for a mortgage, for example. Multiple current account (and related overdraft) applications can ring off-putting alarm bells for lenders.

See if you can save on other bills

Packaged current accounts provide a range of products and services in exchange for a monthly fee. Of course, they are only worth the money if you need the things they are offering – but for some, the deals are definitely worth considering and comparing.

For example, Virgin Money’s Club M account costs £12.50 a month, or £150 a year, but it comes with worldwide family travel insurance, worldwide family mobile and gadget insurance and UK breakdown cover, and there are no fees for using your card overseas. Family travel cover alone can cost the same amount or more.

Other banks’ perks include discounts, vouchers and more. The Club Lloyds account – a step up from Lloyds’s classic current account – lets you choose one of a range of “lifestyle benefits”, such as a 12-month Disney+ subscription or six cinema tickets. There is a £3 monthly fee, although this is waived each month that you pay in £2,000 or more, so many people won’t end up paying it.

Beef up online security

Give your logins and passwords a spring clean to keep your various online, banking and shopping accounts safe. To take the pain out of trying to remember all the unique passwords you should be using, password managers can generate and store them safely in encrypted vaults ready to fill them in for you. There are many to choose from but Bitwarden (free) and 1Password, $2.99 (about £2.35) a month, are the most recommended by security experts.

Better yet, kiss the password goodbye with passkeys: a new technology slowly replacing passwords and two-step verification that works a bit like a physical key for each of your accounts. The passkeys are securely stored on your phone or other trusted device, authenticating you using biometrics (face or fingerprint), a pin or pattern to then log you in, typically by scanning a QR code on a site or directly through a browser or app. You don’t have to remember a complex code – each key is unique to each service, they are secure against phishing, and they can even be synced via good password managers, Google or Apple, in case you misplace your phone.

Set up two-step verification or two-factor authentication wherever possible. SMS-based systems – where the codes are sent to your phone by text – are the least secure, so you should use apps such as Authy, Google or Microsoft Authenticator if possible. They generate a code on your smartphone, which you input on the website you are using.

Remember Isas

You may have got out of the habit of using your Isa allowance but higher savings rates mean that even if you want to hold cash rather than shares, it could be worth doing so in the tax-efficient wrapper.

In the 2023-24 tax year, the most you can save in Isas is £20,000. Any interest you earn is all yours, while with a standard non-cash Isa savings account, you may have to pay some tax. The personal savings allowance means basic-rate taxpayers can receive £1,000 of interest each financial year without paying any tax, while higher-rate taxpayers can receive up to £500. But with some non-Isa savings accounts currently paying about 5.5%, some savers will exceed these limits and be hit with a tax bill for their savings interest.

There are a number of easy access and fixed-rate cash Isas paying 5%-plus, according to Moneyfacts this week.

Saving for something big?

If you are saving up for a home or big purchase, there are some accounts that may help you reach the target a little more quickly.

One official scheme that is already helping hundreds of thousands of people save for their first home is the lifetime Isa. Individuals must be 18 or over but under 40 to open one. You can pay in up to £4,000 each year until you are 50, and the government will add a 25% bonus to people’s savings, up to a maximum of £1,000 a year. But – as Guardian Money has previously reported – the property must cost £450,000 or less, and that is catching out some buyers, particularly those in parts of London and the south-east. Moneybox offers a cash lifetime Isa paying 4.25% interest, which includes a 0.75% one-year interest bonus.

Alternatively, sign up for a regular savings account and enjoy an interest rate of up to 8%.

The best-buy regular savings accounts are typically linked to current accounts: for example, Nationwide’s market-leading Flex Regular Saver lets people save up to £200 a month and pays a variable 8% for 12 months.

Meanwhile, First Direct’s Regular Saver pays a fixed 7% for a year, with holders of its current account able to pay in between £25 and £300 a month.