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Saturday 18 August 2018

Dan White: Having a bank account will soon be very expensive as the competition disappears

Dan answers your financial questions

I have banked with Bank of Ireland for many years and have an overdraft on my current account. When I checked my bank statement recently I was shocked to learn that my interest rate is 14.8pc. There are also lots of other charges including a €25 annual overdraft "facility fee" and an annual interest rate surcharge of 7.2pc if I go over my overdraft limit. These are outrageous interest rates. Is there any bank that offers lower overdraft interest rates?

James

While all of the attention has been focused on mortgages, the banks have also been quietly pushing up their interest rates on other forms of lending, including overdrafts. James's experience alas is typical.

And it's almost certainly going to get worse. With Halifax already after exiting the Irish market and NIB closing half of its branches, competition is rapidly disappearing from the Irish banking market.

While Permanent TSB still claims to offer current account services, the fact that its website no longer lists overdraft interest rates almost certainly tells its own story.

What this means in practice is that, when it comes to overdrafts, most individuals and businesses have just three choices, AIB, Bank of Ireland and Ulster Bank.

While Bank of Ireland has the highest overdraft rate it is almost matched by Ulster Bank, whose overdraft rate is a lofty 14.55pc.

Strings

That leaves AIB whose overdraft rate is "only" 11.95pc.

However, even this lower interest rate comes with strings, very expensive strings actually, attached.

Like Bank of Ireland it charges a facility fee for overdrafts.

This will knock you back €25.39 per year (Ulster Bank doesn't charge an overdraft facility fee).

And there are other sneaky fees and charges for using a current account at AIB.

These include a €10 charge for every unpaid item and €5.15 for every referral, where a payment that puts you over your overdraft limit goes through. You can be hit for up to five referral items in a single day by AIB. Ouch!

All of which means that, despite its apparently lower overdraft interest rate, a spell being overdrawn on your AIB current account could prove to be very, very expensive indeed.

Gimmicks

So what can James do? While all of the banks offer various discounted deals on current accounts there is generally less to these than meets the eye. Ulster offers an interest-free overdraft up to €500 while AIB pays an annual, wait for it, interest rate of 0.25pc on credit balances up to €1,000.

The reality is that most of these offers are no more than gimmicks.

Running a current account is after getting very expensive and it's probably going to get even dearer as the lack of competition allows the banks to widen their margins even further at their customers' expense.

In August 2007 I invested €25,000 with AIB.

This investment is in an AIB secure capital fund in conjunction with Ark Life.

I got a statement in January of this year which stated that the value of the policy was €23,475.

The value of the policy is now €24,700.

I am wondering if my investment is safe if any thing happens to AIB or should I cut my losses and withdraw from the fund at a penalty?

The sum is invested in high-yield equities, fixed interest securities and European property shares.

John

John need have no worries about the security of his investment.

While Ark Life products are sold through AIB branches, the company has been 75pc owned by UK insurance giant Aviva since the beginning of 2011.

This means that his money is with Aviva rather than AIB.

Whatever about AIB, Aviva is not going to go bust any time soon.

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