Banking errors that can cost you thousands of dollars

Banking is a boring household chore and, unlike mopping and washing, making these mistakes could cost you. These simple checks, however, may save you a small fortune.

Fast-rising interest rates are making it more important than ever for consumers to control their personal banking and avoid expensive errors.

From home loans and credit cards to savings and transaction accounts banking mistakes can potentially cost customers tens of thousands of dollars.

However, a few simple checks could save you a small fortune.

Canstar’s group executive of financial services, Steve Mickenbecker, says banking mistakes are common and often costly.

“There are pitfalls everywhere in your banking,” he says.

“That doesn’t mean the banks are doing anything irresponsible – it’s how you use their products.

“In some cases, they don’t mind you making mistakes.”

After all, your loss is often the bank’s gain, often through you paying higher fees or a higher-than-necessary interest rate.

Here are five key banking mistakes that consumers would be wise to avoid.

1 IGNORING INTEREST RATES

The list of interest rate mistakes is long, and led by paying down the wrong debt first.

Your debt with the highest interest rate should be wiped out quicker, so repay that credit card bill charging 20 per cent before turning to a mortgage with a 5 per cent rate. Otherwise, you are losing four times as much money on every dollar of debt.

Canstar’s Steve Mickenbecker says there are pitfalls everywhere in your banking.

Paying a higher-than-necessary interest rate is another big trap.

“People don’t realise just how much it can mount up – it’s a big number,” Mickenbecker says.

On a typical $500,000 mortgage, a bank customer can end up paying tens of thousands of dollars extra over the life of a loan, he says.

Interest rates have become more relevant for savings accounts as rates rise quickly this year. People who don’t watch their rate risk missing out on a good deal, Mickenbecker says.

Author and financial adviser Helen Baker says rates can vary dramatically.

“It’s best to check if there are better interest rates and what are the conditions – for example, you have to make a deposit each time,” she says.

2 ONE ACCOUNT FOR EVERYTHING

Using a single bank account to rule them all is a mistake that can be costly both from a convenience perspective – if a tech outage leaves you locked out without back-up – and for personal financial management.

“When everything goes into one pot, it is unclear what is there for bills, saving, and your account goes up and down,” Baker says.

3 DISAPPEARING DEBITS

Cash transactions are being rapidly replaced by online spending and direct debits, creating costly mistakes for those who don’t keep track of where their money is going.

“Direct debits are a great way to manage bills but often means you don’t check the bill,” Baker says.

“Silently those bills can increase, or there could be an error, but you are not checking.”

4 MISGUIDED LOYALTY

Banks often reward new customers the most, and Baker says staying loyal to one bank can limit your extra benefits.

Financial adviser Helen Baker say check where your direct debits are going.

“Do an audit annually to check on changes, and what other offers there are,” she says.

Mickenbecker agrees that consumers should consider their banking options every year, and also be mindful about switching loyalty for only a short-term gain.

“The banks offer promo rates for a reason – to attract your business,” he says.

“A mortgage cashback incentive usually pays about one repayment, and you will have 359 repayments to go.”

And don’t be lured by headline rates: “it doesn’t include the fees you are paying”.

5 RISKY REWARDS

“Don’t be tempted by rewards such as incentives to switch accounts or traditional credit card rewards,” Mickenbecker says.

“Rewards are great if you pay your credit card on time every time and don’t incur interest.

“But if you are paying interest on your credit card you will never make it up – the rewards will never be worth the interest you pay.”