There are a few interesting differences between the way English banks and American banks seem to function on a day-to-day level. I have been trying to decide which is best, but I have come to the conclusion that ultimately each has its good and bad points.

Overdrafts

In America, it seems to be quite unusual to have an ‘agreed overdraft limit’. Rather, a checking (current) account holder can have ‘overdraft insurance’, which seems to cover  short-term budgeting errors.

Overdrafts are abused in England; some people take them as extensions of their paycheck and routinely ‘live in their overdrafts’, to the point that a paycheck merely takes them back to £0, before they start downwards into it again. Some don’t even make it back that far up the ladder month to month.

Banks love this of course. The interest charged can be as high as 30-odd percent, or in the case of the HBOS group, £1 per day in lieu of interest. Add that up over the course of a year or more and that is serious money being thrown down the drain for what is nothing more than dreadful money management skills.

My agreed overdraft is £1,500, and the first £250 of that is interest free. I haven’t entered it since January, but it is handy buffer for budgeting errors. The £250 interest free part comes with the account that I have, but the additional £1,250 beyond that just grew over the years with my account; Every once in a while they would push it a little further. It seems to have finally settled at the figure it is on.

Peculiar to my bank there is also a facility beyond the arranged overdraft called ‘Personal Reserve‘. It’s a £500 overdraft after your overdraft. Horrible little thing, it costs £22 per day to go in it, but I suspect if you need it, then it is handy to have.

ATMs

Another thing I find peculiar about the American banking system is fees for using different banks’ ATMs. I have never been charged anywhere in the UK for using an ATM that didn’t belong to my bank – beyond those convenience stand-alone ATMs you find in small shops.

This could just be scale. The UK ‘grew up’ as one large piece of infrastructure, whereas America has been hacked together by different institutions in different states at different times. Or is it just one further method of extracting money from the unwary consumer?

Cheques

I have written precisely 1 cheque in the last 5 years – no kidding! Cheques are pretty much extinct here in the UK. Shops have all but stopped accepting them as a form of payment. Yet I have never heard of a personal banking customer in the UK being charged for cheques -  this seems ‘the norm’ in the US? Companies such as Checks In the Mail even seem to print cute designs on them.

Online Billpay

Various blogs extol the virtues of using this system, and if you’ve only had doing the cheques yourself as prior experience, then I can understand. But it seems lightyears away from our Direct Debit system. If the company you are paying isn’t wired into the bank, the bank physically print and mail the cheque? Amazing.

Direct Debit while appearing insecure on the outside, is actually quite brilliant. Take my credit card as an example:

When I got it, I ticked the box on the online account to set up the direct debit. I punched in my bank account and sort code, and set to pay £120 a month. Just this month, it’s now set to “pay in full”.  I could equally set it to “pay the minimum” or somewhere in between. The billing party then submits a Direct Debit request through the banking network, and my bank sends – electronically – the amount requested.

If anywhere along the line there is a screw-up, the Direct Debit Guarantee immediately resets the transaction. I can cancel the Direct Debit authorisation at any time from my Online Banking menu, and ultimately, it’s a stroke of genius.

About the only thing you cannot set up a Direct Debit for in England is your groceries.

Fees

It seems there are banking fees abound in America – even if you run your account right. A fee for even just having a checking account. A fee for checks. A fee for a debit card. A fee if you go over a certain number of transactions. A fee if you have less than a certain amount in your account. A fee for this, that and the other.

I am shocked by this. About the only fee I have paid in the last 10 years for banking has been the odd bit of interest for going into my overdraft here and there. I’ve never paid for cheque books, debit cards, the account itself or anything else.

Perhaps I am just viewing the UK system with rose-tinted spectacles, or the US system isn’t nearly as bad as some blogs make out. Or, perhaps, I’m spot on; in which case, for once, I am glad to live in the UK!

I’m sure at least one of my American readers will set me right soon enough if I have got it wrong.

• My Financial Meltdown: Part 3
• A Formal Complaint to my Bank
• Reclaim Bank & Credit Card Charges
• The Long Term Cost
• 6 Mistakes That Doubled The Price of My Car

This is part 3 of the Meltdown Monday series. You can catch up on part 2 here.

My solicitor (it still feels weird saying that) gave me a bit of a grilling about my personal finances, and how stupid I’d been to have been taken for such a ride in the first place. I think he felt sorry for me in a way, and I’m glad he said what he did. I walked out of his office very depressed, but inside me something clicked. I suddenly became very determined to beat my debt situation and turn my life around. I’ve since discovered this is commonly termed your ‘Light-Bulb Moment‘, particularly by the folks over at the money forum I frequent.

When I got home, my drive was still there to do it. I went over my bank statements again, except this time concentrating on my own spending; Every month there was hundreds of pounds of unnccessary spending of my own doing on there. Expensive organic food shopping, premium diesel, takeaways, gadgets, insurances and more. I was also paying off 2 credit cards and 3 personal loans with wildly varying interest rates, so I needed to work out what I owed and to whom. I worked up a spreadsheet (budget) of my essential spending, and vowed to cut out everything else, trying desperately to spend less than I earned. I drastically cut spending even on essentials: my food shopping allowance to myself dropped from an average of £300 a month down to just £50, my diesel average spend had to drop from £250 as that was an insane amount of money just to spend on getting to work and back.

Then, it was time to attack my debts.

One credit card I’d ignored for the best part of 3 years: it refused to work in the petrol station one morning and I buried my head in the sand from that point onwards. I assumed that as I was paying upwards of £100+ a month on it, the balance must be shrinking. Instead – after biting the bullet, phoning them and resetting my access details for online banking – it turned out I was over my credit limit and had been incurring £16 fees every month for the privilege for the last 3 years! I was also paying interest on these fees every month, so my balance was going up not down, despite my payments. £120 was taken automatically from me every month, but after £90 interest was added, £20 Payment Protection added, and then a £16 fee on top,  my monthly repayments were not touching the balance at all.

Despite this, my credit rating was still good. I arranged an appointment at my bank with a financial adviser and went down with my tail between my legs a few days later in the frigid January morning air. I’ve been with my bank since I was 12, and I honestly believe in this instance, loyalty paid off. I explained my circumstances, was brutally honest, and despite the bank earning loads off me, the lady I saw was keen to help me. She consolidated my existing loans (one at 19% APR, the other at 12% APR) into one loan at a much more preferable 8%, and said I was also showing as pre-approved for the Barclaycard Platinum card that carried a 15 month 0% balance transfer for new customers. She said it was unlikely I’d get a great initial credit limit due partly to policy and partly my existing credit commitments, but anything would be better than nothing for transfer purposes. She also made a point of saying that I shouldn’t be tempted to spend on the card, as despite it having 0% on new purchases for 3 months, the terms of the card meant my balance transfer would be paid first, meaning I’d be stung for interest on the purchases all the while any transfer remained.

Honest advice from a bank – how terribly refreshing!

I walked out instantly having saved £55 a month in loan repayments, and shaved 12 months off the term. Even better was the payment holiday the loan gave me to begin with; 2 months with nothing to pay. I needed this, as it helped me work out where I was without worrying I would end up in my overdraft again.

Shortly thereafter my new credit card arrived with a £1,000 limit. Not great, but £1,000 at 0% is better than £1,000 at 16.9%, so I transferred what I could off my old card onto the new one, and planned to pay off the remainder as quickly as I could. The other credit card I paid off and closed instantly, as it had a surprisingly low balance already. I upped my automatic payment to £400 every month, and made an immediate one-off payment to get me just under my credit limit again to stop the charges. For the first time in 3 years, my credit card balance would reduce on the next payment!

I felt terribly alone at this point. Despite having a good relationship with my family, it’s not a topic I personally feel comfortable discussing with them in great detail. I wanted to feel part of a group in my fight, and to know I wasn’t alone. I mentioned debt to a trusted friend at work and he introduced me to Money Saving Expert (or ‘MSE’ to its friends). The website is a goldmine of information, but the forums are the real feature; Thousands of helpful people from all industries, sectors and walks of life combine together to cut bills, reduce outgoings, help the environment, help each other and play big corporations at their own games. I was hooked instantly – I felt like I belonged – and with their help, I planned my way out of debt for good.

Quite arbitrarily, I set my Debt Free Day as New Years Day 2010. I knew I would struggle to meet that goal, and struggle a lot. I owed £16,000 (if I included my overdraft), or potentially £20,000 (if I include my projected divorce cost), but the difficulty of it is in part why I chose it. I work best under pressure, and it was a significant date, too. It was almost exactly a year after I moved out of my old home and back in with my parents, and it also signified a new beginning: A new year, a new decade, and a new, debt-free me.

Since that moment, I have been working every possible hour of overtime humanly possible, and saving every penny after paying off my debts according to my own plan.

Continue to Part 4…

• 7 Reasons My Friend is Poor
• Is Debt Worth It? Does It Matter?
• The Importance of Redundancy Planning
• Dig Yourself Out of Debt: Spend Less Than You Earn
• Beware The Balance Transfer Cheque