MSE News: Call to end free bank accounts

quantium

At present the way banks get paid for the account services they provide is outside the VAT and income tax systems. Once they start charging, then they will be made to add VAT and account for it to the authorities. In addition, customers will be paying their charges out of taxed income. Of course, banks may be required to pay customers interest on current accounts, but income tax would be deducted or have to be declared.

At present, if say the cost of running an account is £10 per week and paid for by an average of interest on current accounts, then that is all there is to it. But if it is charged, the customer will have to pay £12 inclusive of VAT at 20% (10 x 1.2). He will have to earn gross interest of £15 to meet this bill from income taxed at 20%. (12 / (1-.2) ) That is half as much again! From the account holders point of view this is highly inefficient.

MacMickster

Now that it is all but compulsory to operate a bank account in this country, introducing legislation insisting on charging for the privilege would be a big vote loser. Consequently this will never happen.

Without legislation, customers will continue to vote with their feet and, despite all of the packaged accounts with their "benefits" for paying a monthly fee, most customers do not find them an attractive proposition.

edgex

from the BBC article
http://www.bbc.co.uk/news/business-18186363

Interest rates are lower than the levels offered with savings accounts or the official rate set by the Bank of England. Charges are levied for going overdrawn without permission or for making certain transactions.
Its recommended that customers' annual statements explain the amount of "interest foregone" by a customer. This will be put into place next year.

Interest foregone is calculated by subtracting the amount of interest earned from a current account from the amount of interest that could be earned had the consumer put his or her money in an account which earns higher interest, or put some of that money in savings.



these people blatently dont understand anything about how a business operates, which is what banks are

charged for an overdraft or certain types of transactions?
well your being charged for an additional service, thats all it is.



as for the difference in interest rates
most savings accounts require you to lock-away your money for a specified time period, or have rules as to how often you can make a withdrawal.
those accounts are therefore not only cheaper to operate, but more predictable, which means that money can earn more.



also, what about customer choice?

starsailor123uk

Lets firstly dismiss the myth of free banking

It does not exist the money generated by the bank holding the funds on our behalf would more than make up any changes the banks made.

Why do we think that the bank don't have a clamour as a pseudo-cartel ( they talk to each other through BASEL and the BBA) to introduce charging and paying customer a fair interest on the money held in accounts

The reason, They would be open a can of worms they don't want to!

starsailor123uk

As for the difference in interest rates
most savings accounts require you to lock-away your money for a specified time period, or have rules as to how often you can make a withdrawal.
those accounts are therefore not only cheaper to operate, but more predictable, which means that money can earn more.



also, what about customer choice?

Except banks operate by putting funds together and placing them on the money markets overnight and earning interest at significantly higher rates than the Bank of England casued by supplied and demand ( Its called LIBOR )

As someone who has worked in treasury management for small and medium sized companies we have always shunned the free banking options offered (similar to high street offers for personal customers) as we make significantly more money in interest than any charges. The rsult would be the same for most personal account customers and probably more after a year as people manage their charges better. shopping by-weekly rather than weekly to cut 50% of charges!

Banks want the status quo and there has never been a clamour for a US style system because it lowers profits

Consumerist

Currently those with overdrafts are bearing the brunt of bank charges. It would be fairer if overdraft charges were returned to reasonable levels and we all paid our fair share for the banking services we use.

I am aware that this will not be a popular opinion on MSE but I say good riddance to the "free banking" lie.

DaleN

Consumerist wrote: »

Currently those with overdrafts are bearing the brunt of bank charges. It would be fairer if overdraft charges were returned to reasonable levels and we all paid our fair share for the banking services we use.

That's all very well if banks did reduce overdraft charges at the same time they introduced account charges, but why would they if they could have both, and sanctioned by the regulator too? Oh I'm sure they would reduce the charges initially to gain some acceptance, but give it a few years and they'll creep back up. One might argue that competition between banks would keep this in check, but look how well competition has worked so far: it's only down to £12 now because of the massive reclaiming campaign spearheaded by MSE.

InsideInsurance

Reaper wrote: »

That's a commercial issue that is up to the banks. It is not his job to make sure the banks make a profit, it is up to the banks to offer a viable product.

As a regulator it IS his job to ensure that the banks are both viable and sustainable. UK Retail banking currently has very thin margins and it wouldnt take that much to knock one or more out again. Something the regulator is trying to prevent.

dalek wrote:

Typical money grabbing banks!

Other than it is the REGULATOR that has said it not any bank.


The problem is that the banking market is now starting to go very much the way that insurance did. There are products that make good money - investments, mortgages - and there are products that make minimal/ no profit/ small losses, namely current accounts.

Increasingly people do not have a single relationship with a single provider. You cannot treat the current account as a loss leader as a way of ensuring you obtain the customer mortgage (for example).

Of cause the reality is whilst the regulator wants banks to introduce fees the reality is no one will want to be the first one to jump. The regulator has been wanting insurers not to advertise on price but on product for the best part of a decade but with a few exceptions everyone still advertises price because customers are still so price sensitive.

Scarpacci

Typical of government big wigs stepping in to "protect" certain people, who frankly usually only have themselves to blame, at the expense of the majority of people. I swear the government is in a war on the common man. Unless you're a "special" case these days, you can forget the notion of them being on your side.

Services being paid for by those who fail to follow this rules is a bad thing? So it follows that we should punish those who do follow the rules and make them pay? I suppose it fits the British elite's ideology of making the majority paying for the sins of the minority.

Premier_2

...The banking industry is currently paying out billions of pounds in compensation to customers mis-sold payment protection insurance (PPI).

Bailey adds: "It is hard for a single bank to break out of the existing situation without appearing to raise the price of its service to customers.

"And, it is hard for the industry as a whole to break out without appearing to collude. So, it may require intervention in the public interest, not least because it is a way to encourage greater competition."

Remember that the government agreed to try and create a more competitive banking industry in their coalition agreement

...We agree to bring forward detailed proposals to foster diversity, promote mutuals and create a more competitive banking industry...

:eek:

Mr Bailey is reported to have described himself as "a dog with a bone on this issue"
http://www.bbc.co.uk/news/technology-18185056

Edit:

...Britain is one of the few countries in the world where customers do not pay a fee for their current account. Instead the banks claw back the bulk of the cost of providing branches, online services, and cash machines through punitive fines on customers who go over their overdraft limit or bounce a check.

Only India and Australia operate current account models like the UK....

Free banking was introduced in the UK when Midland Bank decided to scrap current account charges in a bid to grab market share in 1984. It worked so well that the rest of the high street had no choice but follow.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/banking/9286185/Free-banking-should-end-Bank-official-says.html

If free banking is now outlawed in the UK, we'll all know why.