Ever been left bewildered after a visit to the bank but too embarrassed to ask the bank manager to explain money jargon to you?
NatWest have published answers to nine top questions that us Brits want to ask with answers to explain in simple terms just exactly what they mean.
Kyle Mavris, a NatWest Branch Manager says: “We’ve all been in that situation where we’ve opened a bank statement or been on the phone to our bank, and come across a term we’re not sure about, so hopefully our mythbuster below will help answer some of those niggling questions you’ve always had.”
So here's the most common money questions you should really know the answer to:
What’s the difference between a direct debit, standing order and bank transfer?
When you set up a direct debit, you give permission for a business (e.g. gym, electricity provider) to collect payment from your bank account on a regular basis. Direct debits are often for the same amount each month, but this amount can vary depending on how much is due – for example if you have a mobile phone contract and go over your allowance that month your phone company can debit the amount owed which might vary each month.
With a standing order, you set the amount to send each month - for example paying rent, where you’ve agreed a monthly amount. Both direct debits and standing orders are ongoing unless an end date is stipulated or you cancel them. So it’s worth keeping an eye on them and cancelling any as soon as they are no longer needed.
A bank transfer is just a one-off payment to a person or company, for example transferring money to a friend, or moving money between your own bank accounts.
Is it bad that I never read my bank statements?
It’s important to keep up-to-date with the activity on your account, so you know what’s going out and can budget accordingly. If you’re fed up of having bank statements arrive in the post that you never open, particularly if they’re going to an old address, you can switch to paperless banking and review all your statements and balances online.
I don’t have any savings but a lot of monthly outgoings, what type of bank account should I have?
If you have a lot of direct debits going out of your account it would make sense to have an account that offers you cash back rewards on them.
What are teaser rates?
A teaser rate is an attractive interest rate advertised to attract new customers. Teaser rates can be great at the start, but often change after a set period of time and so you could end up paying a worse rate in the long run.
Are bank staff incentivised to sell me more products?
Some banks offer financial incentives to their branch staff to encourage them to sell customers more products. This results in people selling things that aren’t always right for their customers.
What are balance transfers?
A balance transfer is when you pay off the balances on existing cards or loans by transferring them to another credit card account. Of course, customers should not to carry a cash balance on their credit card, but we know that overspending happens.
If you’re facing a mountain of credit card debt, doing a balance transfer might be a good way to make it disappear faster.
How do overdrafts work?
An overdraft effectively allows you to borrow money through your current account. You might request one from your bank or your account may automatically offer you one.
An overdraft should be for short-term borrowing or emergencies only. Unfortunately, it’s all too easy to treat it as your spending limit rather than as a last resort.
It is important to ask the bank to explain all the costs of an overdraft and to read your bank’s terms and conditions. Some bank accounts have free overdrafts, but others will charge you for going into your overdraft. To help you manage your money, you can also set up an alert on your account so you know if you’re about to go into your overdraft.
What’s the difference between an ISA and a standard Savings Account?
An ISA, which stands for Individual Savings Account, enables you to save money without paying tax on the interest. As of the 6th April this year, you can add up to £15,240 to an ISA in the 2016/17 tax year – so now is a great time to set one up and start saving.
For other savings accounts, you may have to pay income tax on the interest you earn, but if you are a basic rate tax payer you can earn up to £1,000 tax free. However, instant access savings accounts usually allow you to deposit and withdraw cash whenever you want, with no limit to how much you can add, giving you added flexibility with your savings.
What are the benefits of a Help to Buy ISA?
With a Help to Buy ISA, when you purchase your first home the UK Government will pay you a bonus of 25% of your savings balance e.g. £50 for every £200. So you could get up to £3,000 towards your first home.
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