MSE News: Renewed calls for simple financial products

JuicyJesus

innovate wrote: »

IMO, there are plenty of "simple" financial products in the market. Making them even more simple doesn't mean people will understand them any better if they aren't being given education on the basics.

I'd go along with that. What terrifies me though is that this sort of hand-holding never seemed to be needed before. What changed?

And before anyone pipes up, I don't think it can be reduced down to something as simple as "the Government were crap" or "the banks got greedy". If anything, with the Government providing increasing consumer protection and resources such as MoneyMadeClear and banks making efforts to simplify their communications with customers, and their product ranges, neither are really to blame. Really, what changed?

Thrugelmir

JuicyJesus wrote: »

IReally, what changed?

We've become lazy and bloated. As life became comfortable on the back of cheap imported products and easy to access credit.

dunstonh

Some of the most simple products also have the worst terms. The next stage after the call for simple products will be the criticism that they are not good value. They wont appear on the best buy lists, wont be sold in enough volume. Media will tell people to buy different products. People will buy different products and providers will then withdraw their simple products.

Then after a period, the media will call for simple products and the cycle starts again.

Porcupine

I'm sure there are folks here who would happily go for a 10% interest deal that involved standing on one leg and singing the Marseillaise backwards. That's not necessarily a good template for everyone though.

I think there's an issue of proportionality. Look at mobile phone cashback deals. You can get a free phone and free service if you're willing to contact them on the 5th Tuesday of every month. But one slip and you're on the hook for a lot of money. That is just an arbitrary schedule dreamed up to catch as many people as possible - there's nothing special about Tuesdays.

So make T&C violations proportionate. You can take money out of any fixed-term account, you just pay a penalty to do it proportionate to what it actually costs the bank. I quite like the Belgian system - any account is instant access, but if you leave money there for more than a year you get a better rate of return.

Make Ts&Cs clear. Tell me what I need to know about Super Special Saver Issue 73 in one place. When I open the account, don't make me read 30 pages of legalese on the bank's policy for bounced cheques and on a credit card I don't have. People don't read this stuff.

Obviously there needs to be T&C for all the eventualities. Maybe have common T&C on basic banking functions across all banks - then you only need understand them once (like the DD guarantee or Banking Code).

Write the salient T&C ('5 year fixed rate of 4.7%, withdrawals permitted on 180 days loss of interest, matures 12/3/2016') on every statement. Compulsory to send an annual paper summary statement, so people don't forget about accounts.

Stop messing about with naming. Don't withdraw your Cashmiser ISA and replace it with a Cashmixer ISA instead. If Ford was a bank, they would bring in a new Mondeo and call it the Mondeo Mk2, but it would be a train.

Stop advertising that you're paying a 'great rate' of 1%.

I'm sure I could go on...

aleph_0

For me, there's a simple principle which could be used for simplification, if account A has 'stricter' or equivalent conditions than account B, the interest rate on account A should be at least that of Account B. (I know, the idea of equivalence could be worked around, so there should be some reasonableness condition - a 90 and 91 day notice account are essentially equivalent, for instance).

Applying this would automatically put people onto the highest bonus rate available to new customers with instant access accounts, and fix most of the inertia-based inbalance.

There are various other accounts which could be simplified. The silly escalator bond accounts which offers "3% in Year 1, 4% in Year 2, 5% in Year 3, no early access", for example should be advertised as 4% AER(*) (the escalator bit is a bit meaningless)

At the moment we have multiple issues of similar accounts, or people being left on a low rate after a bonus, when the bank is offering an account with a bonus with the same conditions.

Of course, as a Moneysaver, this probably would be disadvantageous to me. But since we're getting good rates because the bank is relying on other customers forgetting to move money once the bait expires, I'm not sure if this is such a bad thing overall.
(*) Ok, pedants, it's 3.99%, whatever