Don't blame the campaigners for the end of free banking Blog Discussion

HACZ

russelleng wrote: »

If it only actually costs £2 to administer the system when someone goes overdrawn or bounces a cheque and people pay that £2, do people need to be deterred from doing it?

Of course some will need to be deterred! Even at £30 plus some people still choose to ignore their responsibiliities.

Contains_Mild_Peril

£2 would still deter me.

MarkyMarkD

russelleng_in_his_original_post wrote:

the banking system can lend out around 10 times the value of your deposits

russelleng_in_his_correction_post wrote:

This cycle continues until people have put a total of £1000 into banks, the original £100 is kept in bank reserves and £900 of loans have been created. No more loans can be created because the original £100 is now held in reserve by various banks.

Right, so that's you correcting the bit of your original post which was complete rubbish, then? The banks can actually lend out (say) 90% of their total deposits, not the 1000% that you originally claimed.

russelleng_in_his_correction_post wrote:

Now let's look at the profit for the banking system

... intervening bit snipped for brevity ...

It is correct that if you treat just the first bank in isolation then they would pay out £5 in interest and earn £9 on loan interest payments, making it just £4, but look at the system as a whole and it's worth a lot more.

NO, no, no, for the same reason as above. The gross margin might be 4% on each £ of customer deposits, but that's still only a margin of 4%. It doesn't miraculously become 40% because of your imaginary 10-times multiplication factor, because there IS no 10-times multiplication factor. It's just 4% on the deposits the bank has less, as you pointed out, the bit they can't lend out because they have to keep it in reserve.

russelleng_in_his_correction_post wrote:

'The idea that this is somehow naughty is rubbish.' - I agree, it's not naughty, it's just that people should be aware just how much their cash is worth to the banking system and also to that original bank who would hope to appear a few times within a single cycle.

Their money isn't worth anything like as much to the banking system as you seem to suggest. Banks make net interest margins of between 1 and a couple of % (depending on their mix of lending types). And that's before bad debts, and before administration costs.

russelleng_in_his_correction_post wrote:

'As is the idea that banks can lend out money that they don't have...' - Again, absolutely true if you look at each bank in isolation, but if you look at the totals in my example you can see that the original £100 cash deposit has created a situation in the banking system where up to £900 could be loaned.

Cobblers. Just because the same notional money has moved around the banking system (in fact, moved around the economy and been recycled) doesn't mean that more money is loaned than actually exists. Assets=liabilities.

russelleng_in_his_correction_post wrote:

As for the operating costs of the bank and defaulted loans, you’re right, just having an income stream from loaned money does not make you profitable if costs are high. To get back to the original topic, I’m sure that reclaimed bank charges are hitting profits at banks, but I’m sceptical that it’s enough to make many banks really consider charging fees for all current accounts.

I am absolutely certain that banks are thinking about this. Whether it will happen or not depends hugely on competitive pressures and it's just as likely that they will as they won't.

russelleng_in_his_correction_post wrote:

PS - If we were to use a 3% reserve ratio and Martin's extreme examples of 0.1% and 18% then the income value, rather than the £40 in my example, would be over £578!!

This is just madness so I won't even bother showing why this calculation is wrong. Just re-read the de-bunking earlier in this reply.

denny250

disleksik wrote: »

I'm glad to see I'm not alone in thinking that this almost hysterical campaign will eventually lead to those of us who use banks properly, and at no cost, subsidising the profligate and financially inept.

most the people in this "hysterical campaign" are in deeper because of the banks large and totally unfair charges taking them beyond agreed overdrafts which is what has happend to us ie the charges alone this month come to about £430

nearlyrich

HACZ wrote: »

I wouldn't call the campaigners bad guys. I would ask that the campaign has a further dimension that educates people in financial management and gets them to accept that sometimes we can't always just go out and buy something just because our neighbour has one. Sometimes we have to save. Also just because you spend a no more than your income doesn't put you in a good and secure financial position. You must at least make some provision for the future by having an "emergency fund" for when the car does break down etc.

If you look at the main site you will notice an article about budgeting and even a budget planner so I think Martin has made it clear that running your financial affairs efficiently is the best way to be a money saving expert. I am not in debt myself and I can't remember the last time I gave the banks any of my hard earned cash but I still have compassion for people who have been well and truly shafted by the banks taking unfair charges from their accounts and pushing them further into debt.


Fortunately for me my pension provision is generously partially funded by my employer and my savings are in all the best places thanks to this site, if I lost my job tomorrow it probably would not be a massive issue, sadly it's not the same for everyone.

You can look down your noses at people claiming their charges and brand them all as reckless spenders, unable to resist the urge to shop. Whilst you are feeling smug and self satisfied that you are a perfect example of financial planning just hope that you never find yourself tryng to decide whether to eat or pay a bill due to unforseen circumstances.

Edited to add this is not aimed at any particular poster just a general observation on the lack of compassion apparant in these rants against people claining their charges.

Mark7799

nearlyrich wrote: »

If you look at the main site you will notice an article about budgeting and even a budget planner so I think Martin has made it clear that running your financial affairs efficiently is the best way to be a money saving expert. I am not in debt myself and I can't remember the last time I gave the banks any of my hard earned cash but I still have compassion for people who have been well and truly shafted by the banks taking unfair charges from their accounts and pushing them further into debt.

As far as I can see, the articles on the main site do not mention how to deal with your Bank (which surely is the topic under discussion here) I am aware that such matters have been posted in these forums but wish Martin would give them as much prominence - hopefully it will stop people incurring charges in the future. Pointers including:-

* Getting an overdraft limit agreed as a safety net, not a spending target
* Assuming money leaves your account the day you spend it
* Checking your account regularly - don't assume and be aware banks make mistakes as well
* Learn how to handle direct debits - if you can't then don't use them
* Be aware you MUST have funds in accounts the working day before payments are due out

Why aren't these behaviours promoted as strongly? Surely prevention is better than having to reclaim?

Edinburghlass_2

In fact you'll find in the Reclaim Bank Charges article that Martin links to budgeting and the best bank account threads and stresses that the best thing is to avoid bank charges in the first place.

Too few people using the forums check the Main Site where there are stacks of articles linking to discussions, even one on the fact that Christmas comes at the same time every year and be ready for it

http://www.moneysavingexpert.com/banking

This is the whole reason d'tre of MSE and Reclaiming Bank Charges is just one small part of it, albeit one I'm inordinately proud of being a part of.

Mark7799

I have read the article you refer to (and had done so before my post). I would agree that Martin says the best thing is to avoid bank charges in the first place but can't find anywhere where he says how to deal with the Bank and actually manage your account. Apologies if I'm missing something.

Alikay

I've never had to pay bank charges, not because I've got loads of cash or was always debt-free....just because I've been careful not to go overdrawn without permission. It's not been exciting, keeping records and calculating where each Direct Debit or cashpoint withdrawal leaves the account. It has been tedious and has sometimes felt like we've been wrestling with every penny we spend!

But the outcome has been that we've never been hit by these extortionate charges. So if free banking ends for everyone, because of people who were carefree about keeping records and watching the ins-and-outs of their current account I will be pretty upset.

Whilst I can sympathise with people who have got into this spiral of incurring charges, I don't understand why they didn't shift their debt elsewhere and learn from the experience much earlier.

HACZ

nearlyrich wrote: »

If you look at the main site you will notice an article about budgeting and even a budget planner so I think Martin has made it clear that running your financial affairs efficiently is the best way to be a money saving expert. I am not in debt myself and I can't remember the last time I gave the banks any of my hard earned cash but I still have compassion for people who have been well and truly shafted by the banks taking unfair charges from their accounts and pushing them further into debt.


Fortunately for me my pension provision is generously partially funded by my employer and my savings are in all the best places thanks to this site, if I lost my job tomorrow it probably would not be a massive issue, sadly it's not the same for everyone.

You can look down your noses at people claiming their charges and brand them all as reckless spenders, unable to resist the urge to shop. Whilst you are feeling smug and self satisfied that you are a perfect example of financial planning just hope that you never find yourself tryng to decide whether to eat or pay a bill due to unforseen circumstances.

Edited to add this is not aimed at any particular poster just a general observation on the lack of compassion apparant in these rants against people claining their charges.

I understand that you are not aiming at any particular post, but I would like to state that I don't lack compasion. Neither do I think that allowing people complete freedom to do whatever they like with impunity is a perfect example of compassion. Surely it is better to help people to follow a course of action that allows them to get the best out of their position rather than continually bailing them out without giving them the tools necessary to avoid the pitfalls.

I also think it is naive to think that this reclaiming of bank charges bandwagon is being used predominantly by the people who genuinely need it the most. Let's have a dose of reality. It is more than likely the relatively well educated middle classes who have previously over stretched themselves, buried theri heads in the sand and incurred heavy penalties who are making the most out of this current campaign.

It is also likely that it is the poorer less well educated who need compassion and education the most who are turning to solicitors and other firms who will reclaim the charges on their behalf and take 25% commission - still it makes a change from ambulance chasing!