November 03, 2008

The banks. Oh no, the banks.... (WITH UPDATE)

Reading a post from Chris Brogan about troubles he had with depositing a cheque (check) set me thinking about whether things are much easier here in the UK.

Basically Chris went to a Bank of America branch to deposit a Bank of America cheque from a Bank of America customer. He was charged $6 because he wasn't a customer himself as well as needing a signature AND a thumb print. Reading through the comments attached to that post it appears that this is not an unknown phenomenon. There are, literally, dozens of examples of people who have had similar things done to them. Of course the question that is being raised is 'How can they expect to get away with this when there are smaller banks ready and willing to provide better service at a cheaper cost?'

Looking at this from the UK perspective I have always had similar questions.

Why, for example, on my business account does my bank charge me for putting money into my own account? I can - almost - understand how they can justify charging me a service charge or a fee for payments and other transactions, but when I get on the Internet and transfer my money into my account why should that incur a charge for me? It's isn't costing them anything. Plus I don't get charged on my personal account so why do I get charged on the business account (bear in mind that my bank made global profits of over £1b last year)?

What about interest? If I put £1000 into a savings account with the bank, after 1 year I might get 0.1% return on that, but if I take out a loan of £1000 for a year it will cost me almost ....well, it's difficult to say because the bank won't publish its actual rates but prefers to state that "Rates are subject to status and our assessment of your financial circumstances. We consider a combination of factors to set your personal loan price, including your past account history, your past credit history and other personal details that we hold" Suffice it to say that the base rate for this bank is 4.5%. And this is without any additional fee's and charges for setting up the loan or early repayment, or late repayment etc. That's right, your savings earn interest at 45 times less than your overdraft or loan!

Why the big differential?

Of course I understand that banks have to make money with their activities, they are a business after all. It makes sense that there should be some mechanism by which they take in more money than they pay out. That is the basis of a sound business environment. But in a service organisation I fail to see why the differential should be so huge. Can you name me any other business which has a basic profit margin of 4500%? Would it kill the banks to only make 1000% profit?

The financial industry in the UK has fallen prey to the regulators before in cases like this. Not so many years ago the credit card interest rate was dropped when it was discovered that banks were charging over 30% on balances.

How long before the ombudsman catches on to the fact that the banks are still ripping off customers...?

It now seems that due to a potential negative court ruling against the UK banks, they may consider charging for current accounts and the use of ATM's. According to the Daily Mail (so we'll take it with a pinch of salt) a court case contesting extreme overdraft charges could result in huge penalty charges for the banks. The will, in effect, have to repay the millions of pounds they've fleeced from customers due to excessive overdraft charges. As a result - and in order to recoup their losses - they may introduce a monthly charge for personal current accounts. The charge will cover a set number of basic transactions and anything over and above that (deposits, direct debits, ATM usage) will then be charged.

The OFT (Office of Fair Trading) however believes there is no financial justification for the blanket introduction of charges by the banks.

It says customers are already paying an average of £150 a year for their bank account through the fact they get little or no interest on money held in current accounts, plus other stealth charges.

.. and didn't we just bail out the UK banks to the tune of several billion pounds? Now they want to charge us for that?

Ho hum...

(Photo courtesy of yomanimus Released under a creative commons attribution license)


  1. We are lucky to have any free banking at all, Gary. Most countries don't.

    The amount you have to pay for a business account (a basic expense of running a business) is higher since the bank needs to offset its losses (which are huge) on the side of personal accounts. Also, the people who "look after" your accounts earn considerably more than you pay in fees, so this money has to be made from everyone.

    Loans interest rates, while high for money making purposes (this isn't a charity organisation we're talking about) are higher due in part to feckless fraudsters running away with bank's money or people who can't afford them not paying back. This is the banks fault to a certain extent but all extra checking of people wanting borrowing, you guessed it, costs extra money.

    You always have to option to not take up the loan.

    Look at it this way, a bank will make, say, £3500 in interest after your £1ok loan is complete (so therefore spread over 5 years) If just one of these goes badthe bank has to sell 3 more to just break even on that first loan.

    In fact, I think you'd be surprised just how little money banks make from their Personal Banking divisions - most money comes from the trading floors (oh dear).

    It's irritating, but that's why.

    Plus... it's a business, run to make profits. What do you expect?


  2. Profits are all well and good - and I don't have a problem with a business making a profit - but nobody has yet explained why MY bank charges ME a fee to put MY money into MY account, nor why the differential between savings interest and loan interest is 4500%

    In some countries that's called usury.

    But then again they have to make their £1bn profit somehow.

    But the point of the post is about customer service and how the banks don't seem to have it...