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Is Banking Really 'free' as they claim?
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The other piece that the article is missing is the fact that if you have your money in a current account paying 0% or 0.5%, then that is just by your choice.
You could choose to have your money in a current account paying 3% (Santander or Lloyds TSB). And that 3% is a pretty good deal when it's funding mortgages that are paying the bank less than 3%. Where's the bank's income there?
Martin comments on these two here, but Santander have an appalling reputation so it could be desperation, or just cut throat competition. Once they have netted their prey.......
As far as typical savings rates are concerned
Have a high balance?
If your current account balance is consistently high, then two accounts will beat the top easy access savings accounts. One is Santander 123 above, which pays 3% interest on balances from £3,000 to £20,000 - though it does charge a £2/mth fee.
Alternatively the Lloyds Classic Account with Vantage pays 3% AER in-credit interest on your whole balance if you've got between £3,000-£5,000 in it - provided you pay in £1,000/mth. If you even occasionally go overdrawn, the charges are huge,so avoid like the plague.
It's interesting to compare typical savings rates with typical credit union savings and borrowing rates, especially high street ones. Bear in mind they are small without the economies of scale and cater for small amounts of money and the poorer sector of the population. They seem to do remarkably well considering.Moneyfacts' analysis shows that since the FLS scheme started on 1 August this year, average savings rates have fallen:- from 1.08% to 0.96% for easy access accounts holding up to £10,000.
- from 1.38% to 1.19% for notice accounts holding up to £10,000.
http://www.moneysavingexpert.com/banking/credit-unionsLoans Credit Unions
Sometimes loans can be under 6% a year, but the interest is usually around 12.7% APR (1% a month) going up to a maximum 26.8% APR. If you borrow £100 over a year, at most you’ll repay £126. As noted, these rates are higher than the cheapest Credit Cards or Loans. But they're MASSIVELY cheaper than the products offered to those who are usually turned down for loans from high street banks, when rates can be 200% or more.
Credit union loans usually carry NO hidden charges or penalties if you can pay off the loan early. Life cover is included in the loan at no extra cost so if you die before paying off the loan, the credit union's insurer would repay the loan for you.
How much do the savings accounts pay?
Until 2012, rather than interest like normal savings accounts, all credit unions paid a yearly dividend on savings. Typically, the rate is 2 or 3%, but it could be as low as 0% or as high as 8% of the sum saved.
Some are even offering cards, cashback and current accounts now.0 -
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Martin comments on these two here, but Santander have an appalling reputation so it could be desperation, or just cut throat competition. Once they have netted their prey.......
Santander's service is (on the whole) pretty good now. They've largely left behind the customer service issues that they had a year or two ago.
I don't believe that it's desperation, but just a desire to grow their market share. Santander group has a target of having a 15% market share in current accounts in each market that they play in, of which the UK is one. Providing a really competitive product is how they hope to achieve this.As far as typical savings rates are concerned
It's interesting to compare typical savings rates with typical credit union savings and borrowing rates, especially high street ones. Bear in mind they are small without the economies of scale and cater for small amounts of money and the poorer sector of the population. They seem to do remarkably well considering.
http://www.moneysavingexpert.com/banking/credit-unions
You are mixing up 'typical' with 'average'.
Moneyfacts report on the 'average' savings rates across banks and building societies. This includes the large number of accounts paying 0.1%. So whilst the average savings rate was c. 1%, a typical savings rate was in the region of 2-3% ... roughly the same that you could get from a credit union.0 -
Thrugelmir wrote: »It's interesting to compare typical savings rates with typical credit union savings rates.
Credit union is owned by its members. So has no shareholders to consider.
Indeed and therein lies the key, who would you trust, someone who works in favour of their shareholders, or prioritises their customers? One entices people in with attractive sounding deals and rates, in the hope they won't notice the T&C or accidentally go overdrawn; the other offers more consistent rates and fair terms.
Banks may be better for some savvy consumers if they are careful, switch around and ignore the sales chatter; but it's a bit like running your own business, a financial arms battle, and not suitable for most people, but most still use them. Hopefully, Credit Unions will become more widespread and comprehensive, and not venture into the more commercial aspects of banking like some of the BSs.0 -
The FSCS is experienced at reimbursing savers with insolvent credit unions.
Many credit unions are unable to pay dividends to savers.
I love the concept of credit unions. I thought the country was a better place when it had 600+ building societies.
But decades of regulation has made it impossible for small to be competitive consistently.0 -
And insolvent banks, I was with the London & Scottish!0
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opinions4u wrote: »The FSCS is experienced at reimbursing savers with insolvent credit unions....
Yes, six credit unions went down last year. The FSCS even provide a helpful list. It's a long list.
http://www.fscs.org.uk/industry/sub-schemes/accepting-deposits/deposit-defaults/opinions4u wrote: »Many credit unions are unable to pay dividends to savers.
If you think about it, even those credit unions who pay dividends are only paying the equivalent of 1% or 2% (at most) on savings and yet they're lending out money at almost 27% APR. Following the logic of the OP they are therefore even more of a rip-off than the banks.opinions4u wrote: »I love the concept of credit unions. I thought the country was a better place when it had 600+ building societies.
But decades of regulation has made it impossible for small to be competitive consistently.
Speaking as someone who voted against demutualisation on principle (and a fat lot of good that did) I agree. The problem with UK credit unions is that they are too flippin small.0 -
Speaking as someone who voted against demutualisation on principle (and a fat lot of good that did) I agree. The problem with UK credit unions is that they are too flippin small.
I agree, they see their purpose to serve individual communities, rather than the community in general. There isn't even a CU where I live.
Governments seem to believe that banks should be split up to provide greater competition, but beyond a certain number it's difficult to believe it really makes a difference. It's their fundamental structure and purpose which is the problem. If CUs covered greater areas and sectors of society, perhaps by joining up, this would serve communities far better than splitting up banks.
If CUs and savings institutions without speculative investment arms dominated the high street, there would be no need to provide expensive government protection to the big banks at all.0 -
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.
I certainly know that in the days of high interest rates (1990's) at least one major bank did offer such a service - as I discussed it. It flowed both ways so excess money in the current account would be swept into an interest bearing account. It was not available generally and was only really made available for high earners...who would be too busy to micro manage their accounts so the thinking went.
As I recall however there were some charges related to it or it was attached to a fee bearing current account and the interest rate on the interest bearing account was not top rate. This meant for me it was not worth as I started managing my own accounts via packages such as quicken and a laptop as soon as they became available as a upgrade to a piece of paper: and I had easy physical access to bank/bldg socs to move money back/fro
At the time it all depended on how you valued you time in doing this sort of thing vs doing some else - either more work or leisure pursuits.0
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