What will young people want to know about today’s surprise Supreme Court ruling? UK banks have won their argument that overdraft fees on personal bank accounts cannot be assessed for fairness by the Office of Fair Trading. So what’s the impact on young people?

For those who never spend more money than they have, it is probably good news. A victory for the OFT could have seen banks spreading their charges across all customers. That would very likely mean an end to free banking on current accounts – which is of great value to many young people.

On the other hand, it is bad news for those who run up an overdraft without getting agreement from their bank first.

The moralistic and solvent  are likely to see it as a welcome discouragement of irresponsible borrowing. Which is nice for them. More usefully, the lesson for those working with young people is the emphasis it puts on one of the key pillars of financial capability:

• you have to keep track of your finances.

Understanding this key lifeskill, and getting the chance to practise it, is the way to go. It means knowing how much is in your pocket or your bank account at any time. It may mean getting into the habit of jotting down what you spend – so you don’t wake up in the morning wondering where last night’s money went. And the same for the past week or month. It means checking receipts against bank statements, and checking your balance before withdrawing cash.

A quick word of advice for adults – don’t presume that you know more about this than young people do. Research by the Financial Services Authority found that teenagers and retired people were the two age groups who had the most precise knowledge of what was in their bank account. They are better at it than most adults.

 One of the complicated bits of keeping track of finances is understanding the cheque-clearing system operated by the banks. To be honest, understanding it is perhaps a bit ambitious. But it is well worth knowing when a cheque turns into money that is guaranteed yours to keep.

 The banking industry has a memory aid – two-four-six. That relates to the number of working days after paying a cheque into an account that it becomes money.

 There are three numbers – 2-4-6 – because different things happen on those different days.

 Say you pay a cheque into an account, over the counter at a branch on a Wednesday. That is day zero. 

On Friday, two working days later, the money starts earning interest. If, that is, the account pays interest. If you have an overdraft, this is also the day that the balance on which interest is charged is reduced. 

But you still can’t actually use the money. 

That doesn’t happen until day four. On Tuesday, four working days after you paid it in, the bank will allow you to withdraw the money. 

But you still can’t be sure that the money is yours. The cheque could still bounce – that is, be refused by the other bank. In that case, it will disappear back out of your account. If you spent it, you may have to pay it back. 

However, wait till the end of day six and you can be sure that the money is yours. It is fully cleared. And even the cheque does bounce after that, you are protected from the loss. That means waiting from your initial Wednesday, day zero, to the end of Thursday the following week. Which, basically might mean Friday. (There’s an argument for the memory aid being two-four-seven on that basis.) 

All this is according to the banking code which most banks follow. Ask, or read the small print to be sure. Paying money into a cash machine may well mean day zero doesn’t begin till the following day. 

Note that because the count is working days, the effect can be quite dramatic. Say a young person is given a cheque on a Friday, and pays it in as soon as possible on Saturday. Day zero doesn’t start until the next working day – which is the Monday. So day four – when the money is technically available (but not necessarily for keeps) – is the next Friday. But the end of day six isn’t until Tuesday, or effectively Wednesday. 

It is sobering to realise that that is, from the starting Friday, actually 12 days before it is guaranteed theirs to keep. Much closer to a fortnight than the few days most people imagine. 

And if that’s all too complicated, here’s a reckoner.

 But whatever the detail, the important principle needs saying again and again. Putting a cheque into a bank account doesn’t mean the money is there. Even if it appears on a statement and seems to be “in the account”, it may not be usable yet. 

There are implications of this both for making ends meet and keeping track of finances. Failure to appreciate it can leave a young person unexpectedly without funds or expensively overdrawn. And, of course, if they are selling something, they risk being ripped off by someone who knows the system better than they do. 

More information, including leaflets to download,  from the industry body the Cheque and Credit Clearing Company.

 Cash, by the way, is credited to an account as soon as it is paid in.

Jolly good show.

Some questions are not answered. Or even asked. One is, how many young peope tried to open a basic bank account and failed? How many were discouraged by long delays or the attitudes of bank staff? How many were rejected for not having the right ID or evidence of status?

It would also be useful to know how many of the new accounts were opened by people coming down the banking system’s ladder, rather than getting a step up on it. Bankrupts, people with county court judgements against them, as well as those with bad credit histories, are likely to be among those opening basic bank accounts.

So the figures may not represent success in giving individuals an entry into a system which they hope to upgrade from. They may be more a measure of those obliged to downgrade—indicating retreat, not progress.

The coming year’s intake of university students will be considering such offers, dangled by the high street banks as they compete for custom. Alongside such lollipops are duller financial matters, including the varying interest rates paid on current account balances. Arguably more relevant to students, is the size of the interest-free overdraft on offer.

The price comparison websites, such as money saving expert, money supermarket, and the review centre students accounts are sources for advice on the best offers.

Choosing financial products is a key part of financial literacy. But there are others that may be of greater value to students. The basics of being able to make ends meet, keeping track of finances and planning ahead are, ultimately, far more important to individuals than these introductory offers.

Students might be best advised to visit their university’s student financial centre, if there is one. Some offer a money doctor service, a project operated by the Financial Services Authority which aims to help those managing their finances for the first time.

The toolkit used by money doctors is available online. Good bunch of icebreakers, budgeting tools, activity ideas and case studies.

That was 16-year-old William Bowen, quoted in the Times. He’d discovered an entirely unexplained £2m in his bank account.

The immediate spending spree has left William with a hefty debt that his mother refuses to help with. Great discussion starter. In such circs, what would you do? Can you trust banks not to make mistakes?

Not much inspiration from the readers’ comments, though. Most are fiercely judgmental, dismissive of young people, and without charm or wit.

Is it likely that new bank account charges will be simple to understand, easy to compare, and good value for money? Possibly. But there’s a fair chance that they’ll be deliberately complex, confusing and pretty awful value for money.

Some indication comes from the ruling today by the Advertising Standards Authority against HSBC, which had claimed that its Bank Account Plus customers would not be charged to withdraw cash using their debit card in an overseas ATM.

Yes they will, says the ASA. And told HSBC not to run the ad again.

Anyone wading through the complexities of the ruling would be struck by what a lousy deal it was in the first place. Yes, customers don’t pay an extra charge per withdrawal – though they do pay the normal 2.75% fee that HSBC levies on all foreign currency transactions. And they have to pay £12.95 a month fee (reduced rate for new customers for first six months).

What the Account Plus customers won’t have to pay is the ATM transaction fee of 1.5% charged to bog-standard account holders. By my rough and ready calculations, this means the amount a customer taking up the Plus offer (costing £116.52 in the first year) would have to withdraw to make it make sense would be £7,768. That’s getting on for 150 quid every single week of the year.

Yes, there are other apparent benefits claimed for the account – a measly interest rate of 2.5% paid on balances,  travel insurance and something called identity theft assistance. But the television ad seemed to be selling it on the no-charge withdrawals overseas.

Note, incidentally, that the successful challenge to the ad was made by competitor, Nationwide Building Society. This confusion and competition is all going to get a lot worse.

It is good news for personal financial journalists and price comparison websites. But not so good for young people will have to struggle through all this deliberately complex tosh.

The same can apply even to electronic transfer, and even when you can see that the cash has left one account.

Not unreasonably, young people tend to wonder what’s going on. Delays in the paper-based cheque system are perhaps understandable, once it has been explained. But why do the electrons in  21st century banking move at a Victorian-style pace? Who is benefiting from that money while it’s in limbo?

Anyway, things are to change. The banks are sorting out systems and security to make faster online or phone payment possible. They promise transactions taking just a couple of hours rather than the present three days. Standing order payments will also to move more quickly.

A shame, then, that the implementation of the faster banking system has slowed down. In February the banks announced that the new system was on track for completion by November this year. It is now rescheduled to May 2008. The job is bigger than they thought.

The statement (not particularly interesting, here just for reference) is in a short press notice from Apacs, the trade association for those who process payments.

You can also read how the Office of Fair Trading is disappointed at the news of the delay, but managing to keep its spirits up. It points out that the faster payments should make it easier to avoid unauthorised overdrafts.

Incidentally, Apacs also has a useful FAQ page on cheques. If you get really into the cheque clearing system you might want to download a diagram that explains it all.

Its advice for young people on opening bank accounts blathers on, urging shopping around and other vague notions. Do they really think it’s so simple?

For over a million 16 to 24 year olds in the UK who are not in education, employment or training, it ain’t such a breeze. But there’s nothing on directgov telling you what to do if you are humiliatingly brushed aside when you say you don’t have a driving licence, passport or recent utility bill in your own name at an address you’ve lived at for some time. Or if you just look like a low net worth individual and therefore not someone the banks want to be associated with.

A bit of grown up and realistic advice for young people on low incomes would be welcome—and without mentioning piggy banks.