Accounts open only to New External Money - totally against Fair Competition

SeethingSaver

More bank and building society accounts are offering preferential interest rates which are only available to funds that come from outside, you cannot open the account or transfer funds from an existing account you have with them. This is surely a restrictive practice and totally contrary to fair market competition; so should be banned.
(If all your savings are held in the one place and your banking is done there too then you are totally unable to take advantage of the rates being offered)

Additionally in the case of building societies, these are meant to be run by members for the mutual benefit of other members so the discrimination in favour of people/money from outside the society and against the transfer of funds internally is contradictory to principles of the society.

I have taken these issues up with one building society and failed to receive adequate replies or valid explanations about how they see otherwise.

opinions4u

I won't defend the practice.

But imagine that you are a building society with a funding gap. You need to increase deposits fast.

The easiest way to do this is to launch a new "Super Duper Reward Saver" account paying a market leading rate of interest.

If, however, 10% of your existing customer base moves their money from old lower paying accounts in to the new one, this would cause the building society to start operating at a significant loss.

That significant loss the causes a Northern Rock style run on deposits of a far more significant nature and leads to the collapse of the society.

So, if you were in charge, how would you go about it - finding the balance between existing members, the absolute need for new deposits and the necessity to remain profitable?

SeethingSaver

Financial bodies need to act fairly and competitively, this way of getting a quick injection of money is neither.
The actions of supposed financial experts in so-thought responsible institutions in the recent past has crippled the economy and slaughtered the currency. They have then relied on the country to bail them out. Savers are probably the people who are least responsible for what has happened yet they are the ones suffering the most.
There is no defence or justification for these unfair accounts not completely open to all and money from anywhere.

Old_Wrinkly

opinions4u wrote: »

...
But imagine that you are a building society with a funding gap. You need to increase deposits fast.

The easiest way to do this is to launch a new "Super Duper Reward Saver" account paying a market leading rate of interest.
...
So, if you were in charge, how would you go about it - finding the balance between existing members, the absolute need for new deposits and the necessity to remain profitable?

Surely the relevant point is why a building society has a funding gap.
If they are operating as they were intended to do (money in from savers, money out to borrowers for bricks & mortar) and in accordance with sound lending procedures, then they shouldn't be in that position. If they don't have enough money to lend, then they stop lending (for a while).
It is trying to be a bank that is the problem.
Building societies don't need to be profitable, they just need to break even.

jamesblue

I have just recently close my ING account because of this, I will have to wait 6 months to be classed as a new customer and get their better rate, the customer service guy said it was crazy, but that is the way it is.

Another thing i did not like last year, when i was looking to move my ISA the top paying account was with a popular Bank, but i had to be over 50.

To me this just seems like another form of ageism?


Thanks

Joe_Bloggs

It pays to shop around for the best interest rates.
SeethingSaver said:-

(If all your savings are held in the one place and your banking is done there too then you are totally unable to take advantage of the rates being offered)

If this remains case then you will not be able to take advantage of any deals from another savings provider. It is a not a good idea to depend upon one provider for banking or savings services. It does require some effort to shake off the bonds of consumer inertia. With more than one savings provider it is not too difficult to transfer old money out and make it appear as new money in.

J_B.

opinions4u

Old_Wrinkly wrote: »

Surely the relevant point is why a building society has a funding gap.

There could be a range of reasons for that.

- expanding too fast
- over-reliance on wholesale markets where access has closed
- higher than anticipated withdrawals by members in the light of unfair competition froms state backed banks
- higher than anticipated write-offs in the mortgage book

If they are operating as they were intended to do (money in from savers, money out to borrowers for bricks & mortar) and in accordance with sound lending procedures, then they shouldn't be in that position.

It's so easy to say. But we have lost 90% of our building socieities over the last 25 years simply because small finds it virtually impossible to compete.

It is trying to be a bank that is the problem.

Most building societies don't try to be a bank. It is true that pursuing expansion, often by funding lower quality mortgage wholesale, has not been the brightest move for many.

Building societies don't need to be profitable, they just need to break even.

This is a myth. A break-even operation will not be able to maintain services for members. A branch network that is left to rot, or a web site that doesn't transact efficiently will eventually lead to members drifting away to a competitor that does provide pleasant branches and does provide web sites which work well. Oh, and they need to add profit to reserves to meet regulatory capital adequacy requirements.

If the savers drift away and the mortgage balances remain, you have an insolvent building society. Investment from profit is essential for every building society.

Complying with FSA regulations and new laws can cost the same for a big bank as it does for a small regionalised building society.

The pressure for a building society to be profitable is immense.

I would love somebody to find a way to make it possible for small building societies to set up, compete well and thrive with the existing status quo. I can't for the life of me work out how to do it in global markets of the 21st century though.

Sceptic001

I agree this practice is very annoying. If you feel so strongly, why not close your accounts with the institution and write to the chairman and chief executive to explain your actions. If enough people do this they may change their policy.

Aegis

SeethingSaver wrote: »

Financial bodies need to act fairly and competitively, this way of getting a quick injection of money is neither.

How so? They make the terms and conditions quite clear that the account interest rates are variable, and it makes perfect sense that they would try to generate a large amount of new money in their deposit accounts rather than paying a lot more interest to a generally apathetic customer base. At the end of the day, they're out to make money, and they won't do so very well if they simply raise the amount of interest they are paying on all of their old deposits.

It may not be much fun for the consumer, but it's fair and competitive for the banks. It allows consumers to get a small additional interest rate over the best clean rates if they're willing to rate chase at least every year. Anyone else should accept the fact that variable rates generally suck, and should look to other accounts where the interest rates are fixed if they want to increase their interest rate.

The actions of supposed financial experts in so-thought responsible institutions in the recent past has crippled the economy and slaughtered the currency.

There's no link between low interest rates offered by the banks and the financial crisis. In fact, lower savings interest rates across the board would actually have helped the banks weather the storm because they'd have had fewer outgoings to pay out. If you want to form a link between the crisis and the interest rates offered, then you'll effectively want all institutions to lower their interest rates to increase profitability and to reduce the probability of another crisis occurring.

They have then relied on the country to bail them out. Savers are probably the people who are least responsible for what has happened yet they are the ones suffering the most.

Not really relevant again. The low interest rates are caused by the Bank of England's decision to reduce the base interest rates dramatically to give the economy a kick-start. Giving money to the failing banks was a decision that benefited everyone: savers, borrowers and those who simply use current accounts all need to have confidence that their institutions are safe to put money into.

In any case, the ones that have been bailed out are part-owned by the government, so there will be additional money reclaimed when the shares are reissued to the stockmarket.

There is no defence or justification for these unfair accounts not completely open to all and money from anywhere.

As I said, there's plenty of justification, it's just not much fun to be on the receiving end of it.

Aegis

Sceptic001 wrote: »

I agree this practice is very annoying. If you feel so strongly, why not close your accounts with the institution and write to the chairman and chief executive to explain your actions. If enough people do this they may change their policy.

Now this I agree with. If enough people protest in this way and go to the clean accounts, you will eventually see the practice change altogether. I'm not 100% sure this would be a good thing, as the better rates in general would by necessity reduce, and the spread of rates would likewise need to narrow.

SeethingSaver

Joe_Bloggs wrote: »

It pays to shop around for the best interest rates.


If this remains case then you will not be able to take advantage of any deals from another savings provider. It is a not a good idea to depend upon one provider for banking or savings services. It does require some effort to shake off the bonds of consumer inertia. With more than one savings provider it is not too difficult to transfer old money out and make it appear as new money in.

J_B.

SeethingSaver said:-Says nothing for any regard to customer loyalty or trust on behalf of the bank/society does it. There are plenty of people who are too old to go round opening accounts all over the place (not to mention the ridiculous as well as inconsistent of amount of documentation you have to produce to do so these days) they are also not aware of the multitude of differing accounts that are continuously being sprung up - or of things like the account they currently have has been discontinued and/or the rate reduced to virtually nothing. Also many people trust these institutions a situation which they blatantly take advantage of. Will you still feel the same when you are 90 years old?