Is Banking Really 'free' as they claim?

JuicyJesus

ViolaLass wrote: »

If you want to do P2P lending, you can. Since most people don't, that suggests they just want somewhere safe to keep their money with various amenities such as debit cards etc thrown in.

Exactly right.

All these "blah blah the banks take £96 of our money a year" completely ignores the fact that the cost of providing a competent current account service is not zero. I do all my banking through electronic means or self-service - I don't use cheques except to pay the odd one or two (a year) in, I only rarely use cash, I don't use branches at all often, I don't receive any paper statements or marketing - but it still costs the bank money to process the few cheques I pay in, to stock ATMs with cash, to provide me with debit cards (and the fraud monitoring and response that comes with them), to manage my accounts on their computer system, to process my standing orders and Direct Debits and BACS credits, to staff the branches in case I ever need them, to staff call centres, to provide call centres (which I also don't pay for since I call the overseas numbers, not the 0845 ones)... all of these things cost money, yet I do not get directly charged for them. Given that the average balance of my current account is maybe £100, that seems like a pretty big benefit to me at exceptionally little opportunity cost to myself. If I got paper statements, cheque books, paying-in books, paper marketing material etc and used branch banking heavily, the cost of providing those services would be even higher and the benefit to me even greater. Bear in mind also that despite the relatively high level of overdraft fees, most customers do not get charged them or do so very very infrequently.

The other option would be to pay interest on current accounts and to either charge fees for those services or to reduce them. But then those stuck in the past would whinge that they either have to pay for a cheque book or can't get one, or the vast majority of people would be out of pocket because the amount of interest they get paid would be far less than the cost of the services they used to get free of charge. I'm not saying that either of those options are any less fair than the status quo, just that on the whole people get an immensely unfair deal at the moment - only it's slanted in their favour and against the banks.

grey_gym_sock

what the banks get is (a) a lot of charges from a minority of current accounts, and (b) opportunity to cross-sell other products.

cepheus

rb10 wrote: »

The trouble is, you're not comparing like-with-like.

Firstly, only the highest quality mortgages will be used in RMBS - it's unlikely to be representative of the whole portfolio.

Secondly, this page indicates that the Funding Circle default rate is 3.6%.

Fair enough but the link you gave provided 4 risk levels, is the average of these the correct one to compare with high quality mortgages? The very low risk one is 1.1%

cepheus

As is mentioned in the comments, the point is that Banks still market these accounts as 'free'
In practice people pay £152 per account per year on average. To add insult to injury, the New Barclays chairman, Sir David Walker, says all the mis-selling to consumers and businesses was "the consequence of not charging for bank accounts"

grey_gym_sock

cepheus wrote: »

In practice people pay £152 per account per year on average.

inaccurate, as has been explained.

cepheus wrote: »

To add insult to injury, the New Barclays chairman, Sir David Walker, says all the mis-selling to consumers and businesses was "the consequence of not charging for bank accounts"

he's making that up.

does that even it up? misinformation about banks, and misinformation from banks.

bigadaj

cepheus wrote: »

As is mentioned in the comments, the point is that Banks still market these accounts as 'free'
In practice people pay £152 per account per year on average. To add insult to injury, the New Barclays chairman, Sir David Walker, says all the mis-selling to consumers and businesses was "the consequence of not charging for bank accounts"

Yes but no one is average. We need a bit of personal responsibility, as I get free banking. Thought not totally free as I effectively forfeit some interest, but am subsidised by others who pay charges, that is their lookout as far as I'm concerned.

cepheus

grey_gym_sock wrote: »

inaccurate, as has been explained.

If people are charged that in practice because they haven't got the time to micromanage their money, and accounts are designed to take advantage of odd 'mistakes' to me it is a charge. Have you ever seen a bank which tops up a current account from an interest earning feeder account if it goes into debt for example? It would be easy to arrange in practice if they really wanted to offer a bona-fide free account.

grey_gym_sock wrote: »

he's making that up.does that even it up? misinformation about banks, and misinformation from banks.

So are you saying the Sunday Telegraph made it up? Have they retracted the statement, or has David Walker complained?

dealer_wins

In the OPs calculations he has not factored in the cost to the bank of: staff, premises, equipment, IT, rates, utilities etc

I believe we are very lucky to have free banking really.

ViolaLass

cepheus wrote: »

If people are charged that in practice because they haven't got the time to micromanage their money...

But it's money that you don't have - you would only gain it IF you micro managed your money. If you choose not to (and the option is available) then you're losing potential income rather than being charged.

Thrugelmir

cepheus wrote: »

I guess the flaw in their argument is that they don't take into account arranged loans such as mortgages, which perhaps constitute the bulk of bank lending?

If you take Nationwides 2011 accounts. Assume all £212 billion of assets is used for mortgage lending.

Then after tax profit equates to around 0.15%.

I would stress the 0.

Hardly the huge margins people imagine. Another reason why interest rates could rise for borrowers though. If asset prices were allowed to fall.