MSE News: 'Free' banking system isn't working, says FSA

tifo

olly300 wrote: »

You obviously have a problem where you dispose of leaflets with important information.

I have all my information for all accounts going back 15 years .... None of these told me the account had a 'service' charge.

John_Pierpoint

There are some sites that take snapshots of what is on the web and store it for posterity.
If the account holder has failed to keep all the adverts and small print T & C 's when they signed up; then it might be possible to find a copy.
Some financial institutions have been known to be economical with the truth, when asked directly for copies of all the paperwork.

John_Pierpoint

Alpine_Star wrote: »

Income that banks derive from savings and loans are separate and irrelevant to the income derived from the personal current account market.

?????????

Banks hold massive balances on which they pay no interest; then they multiply up those deposits by as much as 8 to 1 and use that created money to create loans, better known as interest paying debt.

That is what banks do.

How they account, for that profit making exercise, is just smoke and mirrors.

It is up to us as consumers to get the best deal for our personal circumstances - we don't need more and more rules administered by more and more public servants.
Just simple rules requiring clear transparency of the charges involved, is all we need; plus a determination of ALL consumers to get a good deal.

opinions4u

John_Pierpoint wrote: »

Banks hold massive balances on which they pay no interest; then they multiply up those deposits by as much as 8 to 1 and use that created money to create loans, better known as interest paying debt.

This is a myth.

They raise deposits and lend those on. In fact the lend slightly less on, because they retain reserves. If every loan was the deposited in another bank and never spent, then there would be lending again against the original loan funds and a massive growth in the money supply. But people spend the money that they're lent. They buy houses and cars. The improve their homes. They get their breasts enlarged. They take holidays. They buy electrical goods. They don't stick the money in another bank for any significant period of time.

It is up to us as consumers to get the best deal for our personal circumstances - we don't need more and more rules administered by more and more public servants.
Just simple rules requiring clear transparency of the charges involved, is all we need; plus a determination of ALL consumers to get a good deal.

This. Over and over. Know what makes you money and exploit it. Know what costs you money and avoid it.

Alpine_Star

John_Pierpoint wrote: »

?????????

Banks hold massive balances on which they pay no interest; then they multiply up those deposits by as much as 8 to 1 and use that created money to create loans, better known as interest paying debt.

That is what banks do.

How they account, for that profit making exercise, is just smoke and mirrors.

As I said income from loans is separate from net credit interest income which is realised by the PCA section of the bank that charges a fee to the loan section of the bank for the money. The loan section then makes it's own revenues from lending it out.

''Banks typically use these credit balances to earn revenue in other parts of their business. The current account business is usually paid an internal transfer fee by the section of the bank that uses the consumers’ funds. The difference between this transfer price and the interest they pay to the account holder is called net interest income. According to data from 16 banks net interest income is the largest source of PCA revenue at 50 A per cent, or at least £4.1 billion in 2006 (see Chart 2.3 in chapter 2). Net interest income is a key driver of the PCA business model.''

http://www.oft.gov.uk/shared_oft/reports/financial_products/OFT1005.pdf

tagq2

opinions4u wrote: »

If every loan was the deposited in another bank and never spent, then there would be lending again against the original loan funds and a massive growth in the money supply. But people spend the money that they're lent.

Spending money is just transferring it to a different account at the same or another bank. Whichever, the same proportion of this automagically created money can be lent out again so there is a growth in the money supply - it's just limited by not being able to lend out all of it.

Assume regulatory need to keep 10% of its loans as deposits. Customer A deposits £100 into the system. Customer B wants a loan of £90. The system now has £190 in deposits but is owed £90. Customer C is allowed a loan up to £(0.9*190)-90 = £81, and the system now holds deposits of £271 and has loaned out £171. We recognise a geometric progression \sum_{n=1}^\infty ap^n with a=100, p=0.9, which has limit £900. This is, I'm guessing, where John_Pierpoint's approximation "by as much as 8 to 1" comes from.

Then we get onto the Old Lady's magic...

intrepid777

I agree, nothing is free, there is a cost for banks to store our money and transact it and instead of us being stealthily charged for it, we may as well know upfront what that cost is.
On the other hand does any country in the world charge for putting your money in banks? Or is this a UK first idea? I know banks in other countries force you to have a minimum amount in your account, which is I suppose is a good and simple idea, and that minimum amount varies greatly, from bank to bank. So a good idea might be to have banks that cater to the lower end of the market keeping say £50 minimum balances, usually these would be state controlled banks. And on the other hand have private banks that may offer more services but at a cost of having atleast £1000 in the bank lets say.

samjef11_2

intrepid777 wrote: »

I agree, nothing is free, there is a cost for banks to store our money and transact it and instead of us being stealthily charged for it, we may as well know upfront what that cost is.
On the other hand does any country in the world charge for putting your money in banks? Or is this a UK first idea? I know banks in other countries force you to have a minimum amount in your account, which is I suppose is a good and simple idea, and that minimum amount varies greatly, from bank to bank. So a good idea might be to have banks that cater to the lower end of the market keeping say £50 minimum balances, usually these would be state controlled banks. And on the other hand have private banks that may offer more services but at a cost of having atleast £1000 in the bank lets say.

£50 Minimum i don't think that would be good as some people have two bank account one for all the wage and outgoing and the other for the spending money so i think the Minimum should be at least £5.00

olly300

intrepid777 wrote: »

I agree, nothing is free, there is a cost for banks to store our money and transact it and instead of us being stealthily charged for it, we may as well know upfront what that cost is.
On the other hand does any country in the world charge for putting your money in banks? Or is this a UK first idea? I know banks in other countries force you to have a minimum amount in your account, which is I suppose is a good and simple idea, and that minimum amount varies greatly, from bank to bank. So a good idea might be to have banks that cater to the lower end of the market keeping say £50 minimum balances, usually these would be state controlled banks. And on the other hand have private banks that may offer more services but at a cost of having atleast £1000 in the bank lets say.

In other countries you are either;
1. Charged a fee per month/year for having a current account, OR
2. Charged for doing transactions.

Just like business bank accounts operate in the UK.

Though like with business bank accounts there are ways of lowing your charges by choosing an account that is right for your own personal circumstances.

olly300

tifo wrote: »

I have all my information for all accounts going back 15 years .... None of these told me the account had a 'service' charge.

A "service charge" in this context is an additional charge for banking services for example an unauthorised overdraft fee.

Unfortunately while financial institutions are suppose to use clear definitions to enable consumers to understand their products and services they don't.