‘Overdrawn customers forced to shell out extra
July 12, 2007 at 1:13 pm
25 million customers who rely on an authorised overdraft may be forced to collectively pay an extra £52 million this year for the privilege, thanks to a series of sneaky interest rate hikes perpetrated by the country’s biggest high street banks, new research suggests.
In the last six months the Bank of England has increased the base rate by 0.5 per cent; it currently stands at 5.5 per cent. However, a study conducted by independent price comparison and switching service uSwitch.com reveals that nine leading banks have increased their authorised overdraft rates by an average of 0.93 per cent.
Lloyds TSB is the worst culprit, raising rates by as much as 3.1 per cent EAR (effective annual rate). HSBC and Halifax have both raised their rates by 2 per cent EAR and NatWest has followed suit, increasing the burden on customers by 1.46 per cent EAR.
To make matters worse, the same banks have increased their in-credit rates in the last six months by a paltry average of 0.02 per cent AER (annual equivalent rate), while customers with a Halifax Current Account will actually have seen their in-credit rate cut by 1 per cent.
“In anticipation of the Office of Fair Trading’s ongoing investigation into current account default charges many banks are already putting measures in place to recoup the revenue they may lose if fees are capped,” said Mike Naylor, of uSwitch.com.
“Consumers are typically charged interest in double-digits for using overdrafts, and the recent barrage of increases will certainly hit them in the pocket. These banks have been very sneaky by just increasing overdraft rates and not the in-credit rates, and we are pretty certain that the other banks will follow this trend by the end of the year,” he continued.
“We would recommend that consumers keep a very close eye on the interest rates on their current account and look to switch away from providers that start making sneaky changes.”
Over the last nine months Lloyds TSB has increased overdraft rates on all its accounts from an average of 14.8 per cent EAR to 16.1 per cent, an increase of 1.31 per cent. While customers with a Platinum Plus account have seen the rate on their overdraft repayments rise by only 0.2 per cent in that period to 10.2 per cent EAR, Classic account holders authorised to be in the red have been burnt by a 3.1 per cent rise, leaving them forced to pay an astronomical rate of 19 per cent EAR.
Alliance & Leicester’s Premier Direct Current Account offers a zero per cent 12 month introductory rate on authorised overdrafts, which typically reverts to just 5.9 per cent EAR after that.
According to Naylor, a customer with a £677 overdraft switching to this account from a Lloyds TSB Current (16.11 per cent) would save £109.06 in the first year alone.
‘New phase in penalty fees showdown’
July 11, 2007 at 2:21 pm
A judge at Hull County Court has ordered Yorkshire Bank to fully disclose its charging structures and the way it arrives at its penalty fee of £37. This ruling tips the ongoing struggle between banks and consumers in the consumers favour, as banks have previously avoided providing a breakdown of their charges. The other banks involved in this court case settled out of court, paying a total of £50,000 to 37 customers.
Judge Ian Beresford, presiding, said that the seven remaining cases should be heard in court, and that the banks must present a breakdown of their fees. Unlike its peers, Yorkshire Bank has refused to back down and settle out of court, stoically asserting the fairness of its charges. A spokesperson said after the ruling, “We believe our charges are fair and legal. Customers agree with them when they open accounts.” Founder of consumer website moneysavingexpert.com Martin Lewis commented, “Yorkshire Bank is in a difficult position. Either they break the ranks and become the first bank to comply with disclosure or, having said they would fight, they then back down.”
Although customers agree to a bank’s terms and conditions (including their charges) when they open an account, there is debate as to whether the size of the penalty fees levied are legal. Moneysavingexpert.com, who helped fund the case, argues that the real cost to a bank of a bounced cheque or overdrawn account is around £2.50. By charging over £30 for going overdrawn, banks are effectively punishing the customer, rather than simply recouping their costs, which is what is allowed under current regulations. Industry analysts argue that these charges replace what would be administration fees for current accounts – forcing banks to reduce their overdrawn charges will encourage them to move the charges onto all current accounts, thus punishing those conscientious customers who stay within the limits agreed with their bank.
This ruling is a breakthrough and something of a watershed in the ongoing case; consumer groups had previously struggled to make any progress in the courts. In May, a Birmingham county court dismissed the claim of a disgruntled Lloyds TSB customer trying to claim £2,545 in charges from his bank. This effectively acted as the test case, and it became doubtful as to whether successive cases brought against banks would prove to be any more successful. A High Court judge in Leeds attempted to come to an ‘authoritative’ conclusion last week but was frustrated by the banks who managed to pay off all the claimants in out of court settlements. Judge Grenfell was disappointed by the banks, who he had hoped would have had an appetite for establishing their legal ground, and coming to ‘a definitive ruling on matters of fact and law’. The outcome of the case in Hull could be the final word in the war between consumers and banks over current accounts.
If you have been charged fees for going overdrawn and would like to make a claim against your bank, there is plenty of advice available. Click here for Martin Lewis’s pages.
‘Free cash-on-demand services for Britain’s poor’
July 11, 2007 at 2:15 pm
In an attempt to improve cash-on-demand facilities for Britain’s poor, a number of high street banks have decided to increase the number of the cash machines that they operate in Britain’s most deprived areas. These ‘hole in the wall’ machines will allow over a million customers to access cash machines with ease. In the past, the majority of users in poor or isolated areas had to travel long distances to reach a cash machine, whilst others had to make do with machines which required users to pay a fee when withdrawing cash.
There are a number of reasons behind this initiative. Improving cash-on-demand services will clearly boost efficiency. However, the mew scheme is designed primarily to increase equality of access in poor areas. According to the British Bankers’ Association this new cash-on-demand initiative will increase financial inclusion by making free withdrawal facilities available to all. According to Angela Knight CBE, chief executive of the BBA, “Banks are determined that customers have access to their cash wherever they live and work. Banks have driven a campaign to put machines into some of the UK’s poorest areas which means people on low incomes will have the same free access to cash as those in more affluent places.”
This scheme leaves British consumers far better off in comparison to their continental equals. The majority of overseas cash machines charge users for the service they provide. In the United Kingdom, on the other hand, this is the case for less than 50% of the cash machines currently in operation.
‘Card companies ‘cashing in’ on ATM withdrawals’
July 11, 2007 at 12:57 pm
Credit card firms are cashing in on customers who use their card to borrow paper money by charging astronomical interest rates for the service, a new report has revealed.
Independent financial comparison website MoneyExpert.com conducted research which shows that the average APR charged for customers who use a credit card to withdraw cash from an ATM and fail to fully clear the balance is now 23.48 per cent. Seeing as the average rate stood at 21.27 per cent in November 2006, this represents an increase of more than two per cent in less than nine months.
More worrying still, MoneyExpert.com cautioned cardholders that 23.48 per cent is merely the average – at the top end of the market, the Vanquis Visa credit card charges an astronomical 46.19 per cent on cash withdrawals, the website said.
The most recent figures suggest that around £750 million is withdrawn from ATMs using credit cards every month, and customers that do not pay off the balance will face hefty charges. However, those who clear the balance will probably still incur charges, as most card firms impose a withdrawal fee. This can be as high as 3 per cent, and is only omitted by Egg Money, Abbey and the Co-Operative Bank on a selected range of cards.
Cheaper alternative
Credit card companies are pushing up existing rates as well as introducing new fees and charges in response to the regulatory clampdown imposed by the Office of Fair Trading (OFT), as well as a decline in profits brought about by customers switching cards to chase deals.
Simon Gardner, chief executive of MoneyExpert.com, urged customers who need to borrow cash to consider using the overdraft facility on their debit card instead of a credit card. Average authorised overdraft rates are 12.3 per cent – almost half the average penalty levied on credit card users using ATMs.
“Borrowing cash on your credit card is incredibly expensive and unless it’s really necessary we’d urge people to think twice before doing it. The average APR was already expensive enough but card firms have pushed up rates by more than 2 per cent in the last six months,” he explained.
“There are so many cheaper ways of borrowing than 23.48 per cent. It can be tempting to use you credit card to take out cash but if you do you should clear the balance as soon as possible. Using a debit card for cash withdrawals is almost always the best idea.”
For those that would prefer to use a credit card, Co-Op Bank’s Base Rate for Life Visa card is the best option, charging a market leading 5.6 per cent for cash withdrawals.
Meanwhile, new research from the Post Office claims that 60 per cent of card users (19.6 million), lured to certain credit cards by an array of unique incentives, fail to take advantage of any of these bonus features once they are using the card. And even cardholders that do use reward and cash-back facilities only get back an average of £37 a year.
‘Dealing with your finances after university’
July 11, 2007 at 12:45 pm
On leaving university, one of the most pressing issues facing students is the state of their finances. Leaving university places new pressures on the pocketbook and it is essential that you are adept at dealing with your financial situation. There are a number of practical steps that you can take to ensure that your finances are in order once you have completed your course.
Firstly, it is necessary to choose a bank account which has features that correspond to your needs. Abbey, Barclays, Lloyds TSB, HSBC, Natwest and Royal Bank of Scotland offer specific graduate account facilities. Furthermore, if as an undergraduate, you banked with these institutions, then your account will be upgraded once you graduate. It is essential to choose a bank account that best suits your needs, so take the time to examine the options available. Bear in mind that the best account facilities for you may not be offered by the institution with which you held an account during your undergraduate days. Provided that you have remained below your overdraft limit whilst an undergraduate and have proof of your university qualifications, there is nothing preventing you from switching to another bank.
With university fees on the increase, most students will invariably leave college or university indebted. If you are in this situation, then your primary concern should be the rate of interest you are expected to pay on your overdraft. Barclays, for example offer an interest-free overdraft up to £3,000 and as such may be your best bet. However, in a move that is likely to receive a mixed response from students, HSBC has recently decided to charge a flat interest rate of 9.9% on graduate borrowing. Furthermore, you should be cautious when it comes to banks’ promotional offers. Ultimately an interest-free overdraft will be far more beneficial to you than, say, free DVDs, discounts at restaurants or other freebies. So once again, doing your research and searching for the best deal is essential.
Effective debt management is key. Pay off your debts as quickly as possible. More often than not, these debts will be associated with outstanding payments on your credit cards. This will no doubt necessitate a degree of prudence on your part. This means that it is important for you to devise a monthly budget. Whilst it might be tempting to make large purchases now that you have started earning a regular income, do not put off debt repayment or saving. Remember you will have to start paying income and council tax now that you are no longer a student. However, most banks will provide you with advice when it comes to effective budgeting. For example, Lloyds TSB have a useful budget calculator on their website.
Effective management of your finances is crucial once you leave university. Ensure that you choose the right bank account to suit your needs and deal cautiously with your debt. However, if you feel that you are unable to cope, there are a number of institutions that can help you deal with your financial issues. A directory of such organisations may be found here.
‘The catch on 6% instant savings accounts’
July 11, 2007 at 2:28 am
Many UK consumers may have noticed that banks will trip over themselves to pass on the latest interest rate rises to mortgage and loan deals as quickly as possible, but seem strangely reserved about doing the same to interest rates on savings and current accounts.
With the Bank of England base rate sitting pretty at 5.5 per cent for the time being, and standard variable rates on mortgage deals from certain high street providers exceeding the 7.5 per cent mark, it’s shocking to see that the average rate on savings accounts is a paltry 3.5 per cent.
This also means that the small number of six per cent rate instant access savings deals that have popped up since the May base rate rise appear all the more attractive.
However, customers have been warned by financial search engine Moneyfacts.co.uk to check the small print before they plunge into a new commitment, because the headline rate on these accounts can cover up what is often times a poor deal for the consumer.
The ‘instant access’ catch
Some of the best ‘instant access’/’no notice’ rates pay at least six per cent now. Alliance & Leicester’s Direct Saver comes with a 6.10 per cent AER (annual equivalent rate), while HSBC’s Online Saver offers an attractive six per cent AER.
Although the net return may appear enough to protect savings from the effect of inflation, the really quite significant catch is that customers will lose interest on their full balance (not just the amount withdrawn) in any month that they make a withdrawal, rendering the term “instant access” slightly misleading.
“Alliance & Leicester and HSBC are not alone in offering these style savings accounts, First Direct also has a similar product,” explained Moneyfacts.co.uk’s head of savings, Rachel Thrussel.
Although such accounts may provide a perfectly ideal service for many customers’ needs, the issue is not so much with the deals themselves, but with the relative lack of transparency in the marketing of the products, she said. They are advertised as providing customers with ‘instant’ or ‘easy’ but offer no mention of the considerable penalty levelled on account holders that access their money.
“Not only may the rate be attractive, the restriction may offer a welcome deterrent from withdrawing regularly. But the real problem does not come from the actual account terms, but from how they are branded.”
“These accounts can complement a savings portfolio by offering a halfway house between an instant access account and a fixed term bond. However the withdrawal penalties must be made very clear when these products are marketed,” she continued. “Don’t label something as black and white when it is actually very grey.”
‘UK flood claims hit banks in Scotland’
July 11, 2007 at 2:10 am
The recent flooding in north-east England has left a number of Scottish banks hard-hit. Analysts in London have suggested that the two largest banks in Scotland, the Royal Bank of Scotland and the Halifax Bank of Scotland are likely to suffer over £175 million in insurance losses as claims pour in. According the brokerage firm Keefe, Bruyette & Woods (KBW) RBS, which holds about 16% of the UK’s market share through its Churchill and Direct Line brands, is likely to individually face insurance losses of up to £100 million. These estimates have been calculated based on the market share of Scottish banks relative to the market share of those English banks which have already released loss figures. As such, they are likely to be accurate.
Scottish banks are not alone in facing insurance losses as a result of the floods. English insurers are too facing the prospect of grave losses during the coming quarter. The Association of British Insurers has placed the total cost of the floods for the insurance industry at a massive £1.5 billion, with individual institutions such as Lloyds TSB placing costs at some £50 billion. This is despite the fact that many homeowners in the north-east do not possess home insurance. Indeed, the high street bank, Abbey has claimed that one in four households do not possess contents insurance for their homes. Insurance losses are likely to have been far higher were this not the case.
Scots have voiced mixed views on these recent revelations. A number have criticized English financial institutions for burdening them with the fallout of flooding in their part of the country. However, this view does not resonate with most Scots. Paradoxically, the large insurance losses faced by institutions like RBS and Halifax Bank of Scotland reflect the popularity of these banks with English customers.
‘HSBC ends interest-free overdrafts for graduates’
July 5, 2007 at 11:21 am
If you are a newly graduated HSBC customer you may have been dismayed to have found out last week that they will become the first bank to charge graduates for their interest-free overdraft facility. Unless you are prepared to fork out £120 a year, your overdraft will attract interest at a rate of 9.9%.
Up until now, it has been a perk of being a graduate that you continued to have the interest-free overdraft which you had become used to as a student for, in some cases, up to four years after leaving university. For tens of thousands of new graduates with sizeable student debts this comes as bad news. From mid-August the 9.9% rate will be charged allowing them little time to clear their debts.
The HSBC Graduate Plus account offers an interest-free overdraft of up to £1500 in the first year, £1000 in the second and £500 in the third for a charge of £9.95 per month. Defending its position, HSBC has said that it is trying to encourage “sensible borrowing”, but many graduates feel that this is just another nail in the coffin for free banking. Admittedly the account provides the odd perk such as free travel insurance, but it is doubtful that this is worth the fee.
There is, however, an easy solution for disillusioned HSBC customers. There is absolutely no reason why having graduated, you have to stay with the same bank that has handled your finances as a student. Yes, it is easier to do so, but for a little effort you can move to one of the other banks and save yourself a lot of money. Provided you have stuck within the terms of your student account all you will need to produce is evidence of the fact that you have a degree.
Abbey, Lloyds TSB, Nat West and RBS all offer interest-free overdrafts of £2000 in the first year, reducing to either £1500 or £1000 in the second year, and £1000 or £500 in the third year. Barclays is slightly different, offering a standard account and an Additions account. The standard offers an interest-free amount of £1500 in the first year and £1000 in the second, whereas the Additions account gives a far more generous £3000 in the first year, £2000 in the second, £1000 in the third, and £500 in the fourth. The catch here is that a fee of £5 a month is charged. This may still make good financial sense for some graduates, depending on their circumstances. Free mobile phone cover and roadside breakdown assistance is also provided as a perk to Graduate Additions account holders.
If you anticipate going over your interest-free amount, make sure you do your homework on the rates for authorised and unauthorised overdrafts. They vary considerably from bank to bank, with Lloyds TSB charging a whopping 29.8% on unauthorised overdrafts. HSBC on the other hand charges the same 9.9% on their authorised and unauthorised amounts for standard account holders and 15.9% for Graduate Plus account holders.
‘Abbey to offer current account with 8% interest’
July 5, 2007 at 11:17 am
The war over market share for current accounts moved into new territory this week as Abbey offered a whopping 8 per cent interest to new current account customers. This comes after Halifax began an aggressive marketing campaign offering 6.17 per cent interest and a cash payment of £100 for new customers. However, they only offer this rate on balances up to £2500, providing you pay £1000 into the account every month. Alliance and Leicester trumped this deal, offering an interest rate of 6.5 per cent on balances up to £2,500 until July next year, with a minimum monthly payment of £500 into the account. Abbey is also stipulating that new customers must pay £1000 a month into their accounts, and that 8 per cent will only be paid on balances up to £2,500 for one year (after which it will revert to 2.5 per cent or 0.1 per cent). Any cash over the £2,500 level will receive 0.1% interest. Therefore, if you keep £2,500 for the year, you will be paid £200 interest before tax. It hardly needs stating that at these levels this rate is better than a savings account, and consumers with modest savings may wish to consider consolidating their accounts.
Steve Shore, head of banking at Abbey emphasised how much more generous this account is than its competitors. “We want to show customers of the ‘big four’ banks they have a choice and they have no reason to stay with a current account that doesn’t offer great value. Our 8 per cent account is a whopping 80 times more valuable than a standard bank account, which typically pays 0.1 per cent on balances.” Banks offering 0.1% on current account balances include Barclays, Lloyds TSB, NatWest and HSBC. Unsurprisingly, this is where many of Abbey’s new customers are coming from. These banks have been criticised for keeping their current account interest rates at the same meagre level for the past five years, ignoring increases in the Bank of England base rate.
There has been a marked change in current account market dynamics in recent years. Traditionally, people changed bank accounts very occasionally, having a sense of customer loyalty and a personal relationship with their bank manager. However, as many banks closed down local branches and moved contact centres overseas, many of their customers felt they had lost this personal connection and became more willing to seek out new banks to look after their finances. This has encouraged banks to actively compete over current account customers and offer newcomers incentives such as the high interest rates discussed above. However, deals like Abbey’s could easily backfire. Only offering the premium rate to new customers could alienate their existing customers, who are only receiving 2.5% or 0.1%, depending on the type of account they have. Aggrieved that they are not being rewarded for their loyalty, they may go off in search of a new bank account, into the arms of the other banks Abbey is trying to poach customers from.
‘Banks unveil their new student offers’
July 5, 2007 at 11:13 am
With the current crop of final-year students enjoying the benefits of graduation following a gruelling term of examinations, banks are already trotting out their yearly student accounts, offering crazy incentives to a new batch of fresh-faced youngsters, eager to board the financial rollercoaster that is university life.
Lloyds TSB
Lloyds TSB kicks off the list with a 2007 student package that includes £75 free cash, mobile phone insurance and an NUS (National Union of Students) Extra card. The account offers an interest-free overdraft facility tiered to £500 in the first six months, £1,000 during months seven to nine, and £1,500 after that, as well as the option to apply for a Lloyds TSB Student Mastercard. It also provides a year’s YHA (Youth Hostels Association) membership, buy-one-get-one-free driving lessons from the AA, and 35 free eMusic downloads.
“This year we have focused on a mixture of benefits and special offers to suit everyone’s needs and, to help student’s manage their finances, we are offering a tiered, interest-free overdraft in the first year,” said Caroline Brady, head of student accounts at Lloyds TSB.
Barclays
Barclays is offering students the alluring incentive of 12 free cinema tickets on top of a £1,000 interest-free overdraft which rises to £2,000 in the following years. Students also have the option of taking out a Student Barclaycard which charges 14.9% APR, has a credit limit of up to £600 and features 56 days interest-free credit.
The bank is providing graduates with all the same features, as well the optional benefits of an interest-free overdraft up to £3,000, mobile phone insurance and road side assistance for £5 a month as part of its Graduate Additions Account.
Barclays’ head of current accounts, Andrew Harris, said that the bank is offering “a straightforward way to take the hassle out of managing money with a comprehensive package and financial support to enable students to make the most of university life”.
Halifax
Halifax is providing new students with the highest interest-free overdraft of any bank – a whopping £2,750, available in full from the first year of study. The account features an in-credit interest rate of 2.02% AER (annual equivalent rate) to relieve some of the burden of student loan repayments, or fund an extra night on the town. It also provides a 10% discount on the bank’s World Explorer Travel Insurance, a 25% discount on AA breakdown cover and commission-free travellers cheques and foreign currency.
“These increased interest-free overdrafts could mean a significant saving over a three-year course of study – far better value than a record token or other gimmicks,” said Paul Marriott Clarke, head of banking at Halifax.
Royal Bank of Scotland
The Royal Bank of Scotland (RBS), meanwhile, has chosen to target new graduates. Its Graduate Royalties Account offers a three-year interest free overdraft facility of up to £2,000, or alternatively the option of an interest-free loan of up to £2,000. The account provides access to graduate loans of up to £15,000 at preferential rates, as well as a host of discounts on eating out, DVDs and CDs, home and car insurance, travel, and a 0.25% bonus to the interest rate on RBS’ Instant Savings Account.
“Our Graduate Royalties account has really useful benefits and graduates can start using the discounts on offer as soon as their account is open,” said Katie Cassidy, of RBS Graduate Banking.
More offers are expected to appear soon.
