Basic Bank Accounts, Direct Debits and Saving Money

By: CaraTan   Date: 13 July 2011

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CaraTan

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Cara Tan, editor

 

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Basic bank accounts are now being provided by the big high street banks like Santander to provide core banking facilities for people who may previously have found it difficult to open a bank account.  In general, people with poor credit scores are often rejected during the application process for regular bank accounts, and to make matters worse, such a rejection will then further damage credit ratings.  Basic bank accounts can provide some important facilities that a standard post office account can’t provide, facilities that can not only save time but money as well, helping you get back on track after a period of poor financial health.  Here we look at perhaps the most important feature of basic bank accounts, direct debits, and how you can use them to save money.

Payment by direct debit can attract discounts on a range of products, from cable TV to electricity and fuel.  Direct debits allow for automatic regular payments to be taken from your account, and since the company from which you are buying the service knows when payments will arrive and can avoid sending payment reminders, some of the resulting efficiency savings can be passed on to you, the customer.  Discounts of around 5% of the bill are common when paying things like utilities bills by direct debit, producing a small but significant saving over the year. 

Direct debits can also help avoid late payment penalty charges, as you don’t have to remember to make regular payments.  What you do have to pay attention to is the amount of money in your account, making sure that you have adequate funds to meet outgoing bill payments.  Basic bank accounts do not usually come with an overdraft facility, and if a payment is requested by direct debit that exceeds your balance you can end up having to pay penalty charges.    

While payment for regular services such as gas and electricity are cheaper when you have set up a direct debit, you should be aware of the premiums charged for paying for many insurance products by monthly instalment, rather than one lump sum.  Direct debit charges combined with other monthly instalment plan fees can increase the cost of home insurance by as much as 12%, when compared to paying the whole premium in a lump sum.  If possible, you should try and save a little each month to put towards such annual bills, so that you can benefit from the savings produced by paying yearly as opposed to monthly premiums.  Find out the likely cost of these products, and then divide the total cost by 12, aiming to put aside this figure every month.

Once you have worked out the amount that you need to keep back in your basic bank account each month, you can work out your weekly budget.  Establishing a weekly budget is a vital step to gaining control over your finances.  While it can be difficult to stick to at first, weekly and monthly budgets can provide peace of mind, taking the guess work out of controlling your finances.  Have a look online, and you’ll find several impartial money advice websites that can help with the task of regular budgeting, such as the governments Money Advice service.   

 



  


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