Jargon buster: Hold your bank to account

Taking personal finance back to basics

During a working life more than half a million pounds is likely to pass through a family's hands. Understanding more about personal finance should help you make this go up to 10 per cent - or pounds 50,000 - further. This column aims to strip away all the complicated jargon from the subject, helping you to make informed choices so that your money works harder. We kick off with the current accounts - a core financial product to which most of us pay little attention.

During a working life more than half a million pounds is likely to pass through a family's hands. Understanding more about personal finance should help you make this go up to 10 per cent - or pounds 50,000 - further. This column aims to strip away all the complicated jargon from the subject, helping you to make informed choices so that your money works harder. We kick off with the current accounts - a core financial product to which most of us pay little attention.

ou need a current account as a "one-stop shop" for your money, giving you the opportunity to pay for goods and services by cheque or card; to make payments automatically by direct debit or standing order; to receive payments from others; to borrow money; and to obtain cash either from a branch or from cash machines.

As a current account is such an important financial cornerstone, it makes sense to get one that is best for you. That may mean changing your bank - which is not as daunting as you might imagine.

Think about how you want to do your banking: accounts are based traditionally at high-street branches. Ten years ago telephone banking started up. For the first time customers could undertake their banking transactions at a time and place that suited them.

Now online banking is exploding. In the last few weeks Halifax, First Direct and NatWest have announced new online initiatives. Some even allow you to use a mobile phone: recent transactions and the current balance are displayed on a special screen on the telephone. The latest innovation is TV banking. At present this gives limited access to branch-based accounts, but the range of services is expanding.

Recognising that customers want an easier life, the high- street organisations are now offering telephone access to branch-based accounts out of hours and at weekends. Look at press adverts and brochures to see if there is a more convenient way of banking to suit your lifestyle. For example, the Co-operative Bank has a new online service called Smile as well as its conventional banking service.

Many banks offer to "package" current accounts with add-on services such as telephone legal advice lines or insurance. Normally a monthly charge is made for these extras. If you are unlikely to take advantage of the additional features, it makes sense to have a straightforward account.

Most banks offer "free banking". By this they mean they will not charge for everyday transactions such as writing cheques, standing orders and direct debits. Payments into the account in sterling are also free. There is no charge for monthly statements or the issue of cards linked to the account.

Cash withdrawals from the bank's specified network of cash machines (which may include competitors' machines) and its own branches are also free. However, other banks will charge a fee for use of their facilities.

You'll have to pay a fee for other services, such as stopping a cheque. But the costs really mount when the account is accidentally overdrawn. Some banks are more flexible than others. Recognising that it is easy to dip into the red by a few pounds, they have a buffer zone: if they allow the overdraft, interest will be charged rather than an extra fee.

If you stray outside any agreed overdraft or safety zone, or simply overdraw without permission, the costs escalate. If a bank honours a cheque that would have been returned to you had it not been backed by a guarantee card, expect to pay around pounds 60. If the bank bounces a cheque it charges customers pounds 30 to pounds 40. Furthermore, customers who dip into the red without first seeking permission are charged around twice the interest rate of those who formalise their borrowing.

If you do not want to pay over the odds for your banking follow these two simple rules:

Monitor the balance on the account;

Only dip into the red after you have arranged an overdraft.