1. 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, for example a gym or 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.
Direct debits can vary while standing orders are a set amount 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.
2. 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.
3. 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 cashback rewards on them. For example, NatWest's Reward current account gives you 3 per cent back on a range of household bills including council tax, gas, electricty, water, phones, TV and broadband. There is no minimum or maximum amount of eligible bills that can be included or the amount you can earn – all you need to do is pay your bills by Direct Debit through the account and on average people make around £10 a month in cashback. To find the best bank account for you, click here.
4. 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.
5. 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. If you are unhappy with your bank, find out more about how to switch here.
6. 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. If you're facing a mountain of credit card debt, doing a balance transfer might be a good way to make it disappear faster. You can find out more about balance transfers here. To find the best balance-transfer card click here.
7. 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. To find the best bank account with an overdraft, click here.
8. 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 April 6 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 the best cash-ISA rates click here.
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. For the best deals on instant-access savings click here.
- There are more money-saving tips in every issue of Yours magazine, out every fortnight on a Tuesday.