interest paid on cheque withdrawals/deposits

bristolleedsfan

why do most building societies win both ways ie if u withdraw from a savings account by cheque, you stop earning interest day of withdrawal even though the funds remain in the building society for several days, and when you pay a cheque into most building societies they dont pay interest until the 3rd working day following receipt ( they cite fact that they dont receive the funds for a few days, see the first point on cheque withdrawals)

some institutions eg barclays,britannia BS, loughborough BS,cheltenham and gloucester ( same when they were a BS) to name a few pay interest on cheque deposits either from day of receipt or day following receipt

why do the majority of building societies get away with effectively heads they win and tails they win as well on these transactions, compounded by fact when cheque is in transit by post one of the institutions continues to earn interest but never the customer ( same when transactions are conducted by BACS as well one of the institutions continues to earn interest during the complete BACS transfer period but never the customer)

perhaps its time for :money: to launch a new campaign

Milarky

bristolleedsfan wrote: »

why do the majority of building societies get away with effectively heads they win and tails they win ...?
perhaps its time for :money: to launch a new campaign

I quite agree (I also emailed ^ about it too!*) until 1990 there was never any question about a cheque deposit being paid interest from the date of receipt. Then all of a sudden these same 'three day' waits were introduced. I seem to recall the 'reason' being advanced at the time that some customers with new fangled chequebook savings accounts issued by the building societies were just writing cheques to themselves an earning double interest (in just the way it works in reverse when you draw a BS cheque and try to pay it in) This was never convincing to me since the numbers of people prepared to do this must have been tiny (if not mythical) so the real reason was a handy cost saving.

Now when the 'task force' set up by the banks a few years ago to speed payments generally looked into this they had the chance to do something. No one (reasonably) would ask that cheques should 'clear' instantly - they don't need to. But what they could have implemented was a 'same day' interest rule on deposits by cheque. Instead they plumped for '2-4-6' (sounds like a locomotive!) scheme: interest after 2 (working) days -available to draw against after 4 days -cannot be stopped from other end after 6 days. As I pointed out, that actually makes things slightly worse than today : where you can typically get interest AND withdraw said funds after 3 working days

Again, the banks are using self-serving arguments for why this is the best they can do: The numbers of cheques are in decline (just a couple of billion now) and people will have quicker alternatives (etc) so it's cost/benefit thing: why 'invest' to speed up cheque clearance? Except, of course, we're not asking for speedy cheques - merely to receive the value against cheques which bank institutions (and, in the case of ISA transfers, the Treasury) insist on using from day one.

The two days proposed does ensure that banks won't loose when you write your own (personal) cheques - since you will get value from the same day as the cheque is withdrawn from the other end - two days after presentation by you (assuming you bank it instantly) but that again misses a point: when banks write us cheques they are treated in this respect as 'personal' cheques and they shouldn't be.

*Here's that email

14 November 2006:
'Dear Martin',
Please see this thread for more:
Faster Money Transfers on the way

I feel this looks like an awful and deceitful 'stitch-up'; an announcement by the OFT on 'improved' standards for customers' use of cheques that amount to almost nothing - and after a year's review and six years after the Cruickshank Report. Here's what Andrew Smith - then Treasury Secretary smugly said in December 2000: by the way:

There will be no hiding place for anyone seeking to take advantage of customers dependent on them to carry out essential daily banking transactions such as drawing cash, cashing cheques, transferring money or using standing orders and direct debits to pay bills

Well I think that the NCC needs its head examining if it thinks this is actually 'good' for consumers - it's virtually no change at all.

Although cheques are a marginal issue - and the speeding up of BACS payments is a development of much greater significance, this exercise in doing almost nothing at all over cheques can't possibly pass muster - and if Ed Balls thinks it's good thing then it almost certainly isn't!

I would just take you back to 1990 or so - when cheques paid in were treated as interest bearing from the date of receipt. Cheque clearing times were as long then as today, but customers did not lose out on any interest - and so could accept the delay in withdrawing their money. Why then, if we can't expect banks to speed up cheque clearing times because the economic argument against spending any money at this stage is such a 'no-brainier', are the banks themselves so keen to wring a 'mere' 2+ days interest out of each cheque paid in? I understand the way they look at it: You write me a cheque you get the interest until it is drawn from your account -including the weekend - two working days after I present it. Paying me the interest from the date of receipt represents 'double interest' for these two days. But I think that's exactly how it should be - pre 1990 - with a 'no days' wait for the interest.

What do you think? Should there be a campaign to question this conclusion on cheques? Or at least some attempt to expose the cosmetic nature of this change?

bristolleedsfan

Milarky wrote: »

I quite agree (
Again, the banks are using self-serving arguments for why this is the best they can do: The numbers of cheques are in decline (just a couple of billion now)

most building societies dont pay interest on cheque deposits until 3rd working day following receipt so if u pay a cheque in by hand on a tuesday it starts earning interest from the friday ( if u moving funds via building society cheque then assuming coming from local building society and withdrawal is done on tuesday stop earning interest either on the tuesday

if u pay a cheque in to building society savings account on a wednesday u dont start earning interest until the following monday, lose even more days interest if cheque is posted to u and posted on as building societies wont send cheque on directly to another building society

BACS also results in some loss of interest ( while one BS retains interest throughout) ive encountered total refusal by building societies to do a withdrawal by BACS at a branch to another building society, they seem to want to issue cheques ( head offices do BACS withdrawals)

banks appear to behave a little better than building societies on this 1

barclays pay interest by memory on second working day on cheques paid into current accounts/ day of receipt for savings accounts except reg savings

building societies could treat building society cheques different to personal cheques if they wanted to as its immoral that building societies retain interest throughout when customer is moving funds from 1 building society to another building society via building society cheque

Milarky

bristolleedsfan wrote: »

building societies could treat building society cheques different to personal cheques if they wanted to as its immoral that building societies retain interest throughout when customer is moving funds from 1 building society to another building society via building society cheque

I've suggested that if you did stick to the 2 days wait for interest on personal cheques being proposed at present, then a way to compensate customers is for the issuing bank or building society to have to 'add days' from the date of issue of one of their own cheques. I've suggested this should a bit longer than the 2 working days - probably five working days - to allow for postage and presentation but, more importantly, there would then be a reasonable incentive on these organisations to switch to BACS at some stage. Imagine you are a 'small building society' and issue only 500 cheques a month [average amount let's say £500 - as you have many small balance accounts]. That would be £25,000 per month. If one week's interest [4.5% average?] had to be added that would amount to just £21.63 per month additional cost - 4p per cheque. They easily could afford this.

Assuming therefore that the current stitch-up (erm 'agreement') between the banks and the OFT/Gordon Brown on cheques cannot be altered then this is a way - campaigning for an 'added feature' - that the delay on cheques can be made more palatable for customers. And I stress: i) NO bank would be forced to use either cheques or BACS, but ii) switching to BACS is what everyone (including banks) say they want so anything (like this) that discourages banks from writing cheques is a 'good' thing surely?

bristolleedsfan

Milarky wrote: »

I've suggested that if you did stick to the 2 days wait for interest on personal cheques being proposed at present, then a way to compensate customers is for the issuing bank or building society to have to 'add days' from the date of issue of one of their own cheques. I've suggested this should a bit longer than the 2 working days - probably five working days - to allow for postage and presentation but, more importantly, there would then be a reasonable incentive on these organisations to switch to BACS at some stage. Imagine you are a 'small building society' and issue only 500 cheques a month [average amount let's say £500 - as you have many small balance accounts]. That would be £25,000 per month. If one week's interest [4.5% average?] had to be added that would amount to just £21.63 per month additional cost - 4p per cheque. They easily could afford this.

Assuming therefore that the current stitch-up (erm 'agreement') between the banks and the OFT/Gordon Brown on cheques cannot be altered then this is a way - campaigning for an 'added feature' - that the delay on cheques can be made more palatable for customers. And I stress: i) NO bank would be forced to use either cheques or BACS, but ii) switching to BACS is what everyone (including banks) say they want so anything (like this) that discourages banks from writing cheques is a 'good' thing surely?

i agree totally, obv atm ( best to just look at the building society cheque of things rather than personal cheque side of things) building societies seem very happy how things are at present, they not interested in BACS at branch level and indeed their would be a problem with some building societies receiving one off payment via BACS ie those that have one account no for all ( eg loughborough BS) others like yorkshire BS have unique account nos

MarkyMarkD

Goodness, you lot need to get a life!

I'd far rather the financial institutions concentrated on paying good interest rates - like many of them do at the moment - than that they added 2 extra working days' interest to cheque withdrawals.

Similarly implementing systems for branches to initiate BACS transactions is a lot of systems effort for next to no benefit.

You are talking about making a lot of systems changes for next to no customer benefit.

Most customers don't withdraw significant amounts by cheque anyway, in comparison to the amount they have in savings. It's only rate tarts who suffer (a tiny bit) by losing 2 days' interest in 365 if they move accounts once a year, or more if they tart around every few months for 0.01% difference in rate.

2 days' interest in 365 at 6% is only 0.03% or £3 on £10,000.

Big wow!

bristolleedsfan

MarkyMarkD wrote: »

Goodness, you lot need to get a life!

I'd far rather the financial institutions concentrated on paying good interest rates - like many of them do at the moment - than that they added 2 extra working days' interest to cheque withdrawals.

Similarly implementing systems for branches to initiate BACS transactions is a lot of systems effort for next to no benefit.

You are talking about making a lot of systems changes for next to no customer benefit.

Most customers don't withdraw significant amounts by cheque anyway, in comparison to the amount they have in savings. It's only rate tarts who suffer (a tiny bit) by losing 2 days' interest in 365 if they move accounts once a year, or more if they tart around every few months for 0.01% difference in rate.

2 days' interest in 365 at 6% is only 0.03% or £3 on £10,000.

Big wow!

ironically i had a feeling u would post giving a negative response ( aka sticking up for the institutions) to the thread :rolleyes: u did same thing on one of the isa posts i noticed yesterday :rolleyes: http://forums.moneysavingexpert.com/showthread.html?t=449350

i dont know where the " 2 days" thing is coming from most building societies dont pay interest on cheque deposits ( even building society cheques) until third working day FOLLOWING working day of receipt, argument given is that they dont receive interest instantly on cheque deposits, my contention is that building societies retain interest on building society cheque withdrawals despite interest on customers accounts ceasing as soon as withdrawal instruction is made, with additional days of interest involved if building society cheque is transacted through post and 3rd working day following receipt overlappes a weekend or bank holiday

im not sure where u get your calculations from 10000 @ 6%, loss of interest is 1.64 per day :rolleyes:

MarkyMarkD

I completely understand the point you are making. And nor am I "sticking up for the institutions", although I do have a tendency to do so on here to try to compensate for the rabid "stick it up 'em" attitude many people seem to have.

But you must appreciate that:

- the amounts involved are trivial (and 2 x £1.64 obviously rounds to £3, so not sure why that confused you)
- it all goes into the wash, and if for some ludicrous reason institutions were forced to pay interest from the day of receipt/to allow a few days for cheque clearance on cheque withdrawals, they'd simply cut rates (by the trivial 0.01% or whatever it would work out at) to compensate. Money doesn't come from nowhere.

And, BTW, I used 2 days because that's the shortest time it will take until the cheque clears through their account.

Milarky

MarkyMarkD wrote: »

if for some ludicrous reason institutions were forced to pay interest [STRIKE]from the day of receipt[/STRIKE]/to allow a few days for cheque clearance on cheque withdrawals, they'd simply cut rates (by the trivial 0.01% or whatever it would work out at) to compensate.

The reasoning wasn't 'ludicrous', it was simply my back-of-an-envelope suggestion to deal with the particular unfairness of cheques that banks/building societies choose to 'foist' on us at their own discretion - and incidentally catch them at their own game. They say cheque use is in decline, largely because of the popularity of electronic transfers. So what is ludicrous about the industry agreeing to expedite the adoption of BACS for their own payments by modestly 'fining; them (so they lose more interest than they gain) where they continue to rely, or (worse!) simply refuse to move away from cheque withdrawal? (It was was 'our' money the last time I looked)

[BTW, I boobed on the arithmetic above - it should have been £250k for 500 cheques - and 40p per cheque not 4p]

bristolleedsfan

MarkyMarkD wrote: »

I

And, BTW, I used 2 days because that's the shortest time it will take until the cheque clears through their account.

quickest cheque clearance is irrelevant most but not all building societies including nationwide (who are not "proud to be different" in this instance) dont pay interest on building society cheques paid into saving accounts until the 3rd working day FOLLOWING receipt ( on 4th working day including receipt) so if cheque comes through post is another working day loss of interest if cheque goes elsewhere is another working day loss of interest which means loss of interest on 2 non working days as well, yet the building society that issued the building society cheque retains interest often for over a week

yes some institutions may be paying better savings rates due to this gain but their are others who pay abysmal savings rates despite profiting as described above

we all have our pet hates, u go on about nationwides charitable signaway abnormality which i personally view as a waste of time going on about as nationwides signaway was only introduced to prevent members attempting another conversion vote but u are entitled to your gripe and im entitled to mine re the post subject :cool:

MarkyMarkD

Milarky wrote: »

The reasoning wasn't 'ludicrous', it was simply my back-of-an-envelope suggestion to deal with the particular unfairness of cheques that banks/building societies choose to 'foist' on us at their own discretion - and incidentally catch them at their own game. They say cheque use is in decline, largely because of the popularity of electronic transfers. So what is ludicrous about the industry agreeing to expedite the adoption of BACS for their own payments by modestly 'fining; them (so they lose more interest than they gain) where they continue to rely, or (worse!) simply refuse to move away from cheque withdrawal? (It was was 'our' money the last time I looked)

It's a competitive market; if banks/building societies wanted to adopt your non-ludicrous :rolleyes: suggestion then they could do so in order to gain competitive advantage. The fact that they haven't done so reveals the fact that 99% of their customers don't care.