February 2023
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Avoid the 5 worst money mistakes: 4. Only bank with your bank

The main high-street banks (HSBC, Barclays, NatWest, Lloyds etc) love to run our current accounts. They don’t make too much money from this. But it gives them the chance to do what they call ‘cross-selling’ – using their contacts with us and information about us to flog us all kinds of other financial products. These include deposit accounts, mortgages, insurance, pensions, investments and so on. But, apart from some very rare exceptions, you’d be a fool to buy any of these products from your high-street bank.

For deposit accounts you’ll usually get much better rates from the former building societies. Mortgages – it’s normally better to go to a specialist mortgage broker. Insurance – why pay a large commission to your bank, when you can buy more cheaply direct (on-line) from an insurance company? Pensions – anyone saving with a high-street bank is going to pay so much in charges that they’re going to end up awfully poor. Investments – time after time it has been shown that banks (especially Barclays and HSBC) have cobbled together and mis-sold appalling investment schemes which have made billions for the banks and lost billions for their gullible customers.

 At the moment, many banks are enthusiastically flogging what are often called ‘Growth Bonds’ or ‘Guaranteed Bonds’. These promise to pay around 120% of stock-market index growth for a five- or six-year period and guarantee to return all a saver’s capital even if the index falls. About £58bn of our money has gone into these awful products. What too many savers don’t understand is that almost all the benefits of stock-market investing come from the dividends paid by the companies whose shares are bought and not from any movements in the overall market. Yet these products only pay out on increases in the market index. Most savers will get back less than they would have earned just leaving their money in an ordinary bank account, but the banks have pocketed £1.5bn of our money selling these products and a further £580m a year in ‘trailing’ commission.

So the lesson is – ‘only bank with your bank’. Only let your high-street bank run your current account. If you do any other business with the likes of HSBC, Barclays, RBS, Lloyds, NatWest then the chances are that you are a fool and are paying for over-priced, poorly-performing products.

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