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'A warning to FCA boss Martin Wheatley...' blog discussion

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'A warning to FCA boss Martin Wheatley...' blog discussion

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This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




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  • JimmyTheWigJimmyTheWig Forumite
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    I disagree, Martin.
    If everyone followed your advice and ditched and switched when the promotion rate was over, the banks would stop doing the promotion rates.
    They don't do it because they want customers for one year. They do it because they know that if they can hook a customer in then they may well stay a customer for many years (on low rates).

    I accept that you are able to get better rates in this way. I accept that I am, too. But if you are to defend "stupid people" (see your earlier blog: http://blog.moneysavingexpert.com/2011/10/21/a-blog-in-support-of-stupid-peoples-rights-probably-the-most-important-blog-ive-ever-written/) then you have to oppose these introductory rates. (And the best way to oppose them, as I said above, is to encourage people to take advantage of them.)

    If these crazy deals were to stop then perhaps we would have (slightly) better long term rates.

    I take your point that all rates can drop. Where that is because the bank in question is dropping their rates across the board then I think that is fair enough. I would rather see (in the extreme scenario) a bank reduce its rates and stay afloat than a bank be forced to pay out high rates and go under.
    I do think that where banks have rafts of different savings products (e.g. Issue 9, Issue 10, etc) that they use to slowly drop the rates of existing customers but keep rates high for new customers is a terrible thing. If introductory rates are to be scrapped then these should too.

    If existing customers got the same rates as new customers then I think the average rate for existing customers would increase as that is what they would have to do to be competitive and get in best-buy tables. Which has got to be a good thing for the majority of savers (at the expense, I'm afraid, of some of your readership).
  • MSE_MartinMSE_Martin MoneySaving Expert
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    I disagree, Martin.
    If everyone followed your advice and ditched and switched when the promotion rate was over, the banks would stop doing the promotion rates.
    They don't do it because they want customers for one year. They do it because they know that if they can hook a customer in then they may well stay a customer for many years (on low rates).

    I accept that you are able to get better rates in this way. I accept that I am, too. But if you are to defend "stupid people" (see your earlier blog: http://blog.moneysavingexpert.com/2011/10/21/a-blog-in-support-of-stupid-peoples-rights-probably-the-most-important-blog-ive-ever-written/) then you have to oppose these introductory rates. (And the best way to oppose them, as I said above, is to encourage people to take advantage of them.)

    If these crazy deals were to stop then perhaps we would have (slightly) better long term rates.

    I take your point that all rates can drop. Where that is because the bank in question is dropping their rates across the board then I think that is fair enough. I would rather see (in the extreme scenario) a bank reduce its rates and stay afloat than a bank be forced to pay out high rates and go under.
    I do think that where banks have rafts of different savings products (e.g. Issue 9, Issue 10, etc) that they use to slowly drop the rates of existing customers but keep rates high for new customers is a terrible thing. If introductory rates are to be scrapped then these should too.

    If existing customers got the same rates as new customers then I think the average rate for existing customers would increase as that is what they would have to do to be competitive and get in best-buy tables. Which has got to be a good thing for the majority of savers (at the expense, I'm afraid, of some of your readership).


    I agree with everything you say EXCEPT the last paragraph. I simply dont know if average rates would increase - and whether they would increase consistently or you'd still need juggle.

    Plus at the moment to risk playing with an already dire market is too dangerous, the time to tinker this way is when the market is competitive not when savings providers are fighting to stop themselves topping the best-buys
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
    Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.
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  • RogeRoge Forumite
    15 posts
    Banks should be able to offer whatever bonuses or special offers that they want. They are businesses after all. If a shop wants to sell something cheaper than elsewhere they can and this is basically the same.

    What I hate about the current situation is the following:

    1# Obvious Traps - I transferred my savings and ISA's recently after special bonus rates ran out. I asked the operator what the rate would have dropped to had I not transferred - His answer was 0.01%!!

    Things like that are an absolute disgrace. It should change to their most competitive, freely available product by default.

    2# Hiding of T&C's and interest rates.

    When you login to your internet banking you should be able to click each account and be given the current interest rate, the date if it runs out and be able to read the T&C's. Almost all the accounts I have hide this information and you typically have to ring up to find out.
  • The real problem with current savings rates is not the products but low base rates and BoE monetary policy such as FLS and QE.

    If the BoE hiked base rates back up to 5%, then no one would fret over a 0.5% bonus.

    :mad::rotfl::mad:
  • VT82VT82 Forumite
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    Roge wrote: »
    I transferred my savings and ISA's recently after special bonus rates ran out. I asked the operator what the rate would have dropped to had I not transferred - His answer was 0.01%!!

    Things like that are an absolute disgrace. It should change to their most competitive, freely available product by default.
    No, it shouldn't change product at all, and it doesn't. It does what it says it does when you signed up to it. The product stays the same, and the rate does what it is supposed to.

    And anyway, how would they decide what 'their most competitive product' is? What if their headline product has two fewer withdrawals a year than the one you had previously, or a small notice period? How are they to know what's in your best interest and what isn't?

    The fairest thing for everyone is for the banks to make things clear at the start, and for customers to take some responsibility. At least under the current arrangement the first of those is happening, and the FCA can't legislate on the latter.
  • RafterRafter Forumite
    3.8K posts
    The problem seems to always be the unintended consequences of regulation and competition - plus customer inertia - as JimmytheWig has already pointed out.

    Not sure I have a solution, but here are some ideas:

    1) Require any account with a goto rate or paying less than 50% of base rate (currently 0.25%) to not be called a savings account.

    2) Require any account with a bonus >50% of the initial rate to carry a health warning and the goto rate to be given equal font size as the intial rate in any advertising.

    3) Which? or another body (perhaps even MSE) to come up with a star rating for savings providers so only those who commit to always tell customers about rate changes, who have low bonus', who don't have 'new customer only' accounts etc can earn a 5* rating but those who do use these tricks earn a much lower rating.

    4) Ban price comparison sites from showing 'sponsored' products at the top of their tables and compelling them always to show the best rate and the best equivalent non-bonus rate.

    I think I agree that bonus' on savings accounts, introductory rates, switching incentives are a good thing for competition - but only if they are modest and don't result in big cross subsidy from customers who are loyal - but quite happy with the service they are getting. For example, as someone who banks with first direct, it annoys me when I see people opening accounts just to get the £100+ joining bonus and not for the good service. Ultimately that must mean that my interest rates are worse or charges are higher and as a loyal customer I am therefore being penalised.

    I really don't see why anyone should benefit by more than say £50 for switching current account, credit card, savings account - this is enough to promote competition but not enough to cause big cross subsidisation between different customer groups.

    R
    Smile :), it makes people wonder what you have been up to.
  • wozearlywozearly Forumite
    202 posts
    If existing customers got the same rates as new customers then I think the average rate for existing customers would increase as that is what they would have to do to be competitive and get in best-buy tables. Which has got to be a good thing for the majority of savers (at the expense, I'm afraid, of some of your readership).

    I think that's unlikely for a few reasons.

    Firstly, where the 'balance point' interest rate would be between existing and 'bonus' is going to depend an awful lot on the average amount of time people tend to remain on products (in a perfect MoneySaving world, people would ditch and switch as soon as the introductory rate ran out...quite a few probably don't), and the proportion of 'existing' customers compared to new ones.

    If those receiving the bonus rate are a sizeable number of people, then that could be redistributed to everybody. If they're actually represent a relatively small fraction of savers, there may not be enough to distribute to raise everyone's interest by 0.01% (or whatever is felt to be the smallest sensible increment).

    Secondly, its also worth bearing in mind that this is a marketing tool as much as anything else, designed to attract new business. The logic being that its better to retain some of the savings from price-conscious switchers at a lower profit margin (ie, giving the interest bonus away) rather than lose it to a competitor entirely. The expiry date and restrictions on it being a new account means that the risk is actually fairly contained.

    Existing customers? If they're happy at their current rate (ie, they aren't banging on the doors to go elsewhere), why should the bank feel obliged to offer them a small interest increase, as opposed to finding a new way of giving a bit extra to new customers to encourage price-conscious switchers? Also, not having a switch offer would leave the bank vulnerable to others poaching its existing customers while it had few effective price tools to attract new ones.

    Finally, the other main reason we see introductory rates, specific rules on withdrawls, non-transparent statements and odd joining offers is that financial service providers will do almost anything to avoid being forced to end up having directly comparable products to competitors, as that leads to a ruthless competition on price, because its easy for the customer to spot which is the better deal.

    That type of competition is great for the customer in the short-run and terrible for the organisations involved, as their profit margins will tend to collapse. Unfortunately, its risky for the customer in the long-run as there tend to only be one or two corporate survivors and you end up with a monopoly power in the market - look at how powerful Amazon has become, and the brands its destroyed in its wake, by offering commoditised products through a different and cheaper sales route to retail stores.
  • I've had trouble with pcm in banbury. I let my mate borrow my car for a day. A week or so later I receive a pcm parking fine. I've rang the company because I wasn't the driver at the time. Unfortunately my mate has moved abroad, I don't know where. I've emailed him the pcm notice. But now I'm receiving letters from pcm about baliffs. They want me to pay the 100 pound parking fine. I've refused because I may be the registered owner of the vehicle but I wasn't the driver at the time. So they can sit a swivel for there money.
  • JimmyTheWigJimmyTheWig Forumite
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    wozearly wrote: »
    Also, not having a switch offer would leave the bank vulnerable to others poaching its existing customers while it had few effective price tools to attract new ones.
    That's exactly why we need some sort of regulation to help. it is good business at the moment for companies to offer the best deals to new customers. If one bank doesn't do that, they will miss out. But if all banks don't do that then there is no reason for any one bank to miss out.
  • wozearlywozearly Forumite
    202 posts
    That's exactly why we need some sort of regulation to help. it is good business at the moment for companies to offer the best deals to new customers. If one bank doesn't do that, they will miss out. But if all banks don't do that then there is no reason for any one bank to miss out.

    But which problem is the regulation is aimed at solving?

    Banning introductory rates would be comparatively straightforward - the FCA could state that savings accounts must either offer a fixed interest rate that cannot be varied in the future, or link themselves to a fixed distance from a stated reference point (e.g. x% points above/below BoE base rate).

    Even setting unintended consequences aside, it wouldn't actually resolve the issue that it would remain more profitable to offer the best deals to new customers - it would just prevent the banks from using introductory interest rates as the mechanism.

    That might result in more "£100 if you switch offers", but more likely something less obvious such as increased charges and penalties for withdrawals, admin changes, etc. There's no guarantee it would result in a clearer/better situation for switchers who stay on the product out of inertia/laziness and absolutely no hope that it would benefit existing savers who don't switch in any way.


    Banning the offering of financial incentives to new business would lead to howls of protests around interfering with competition - I can't off the top of my head think of any other business field where this occurs, and it would be easy for the banks to spin as "FCA prevents banks from offering good deals to customers". In reality, they'd find ways to try to compete on services, or extras, or combinations of products with a fee structure - anything but be transparent. Nothing that would benefit existing savers with higher interest rates.


    Even taking a leaf from the energy market and restricting the number of active products allowed by each provider (even saying they could only offer one) wouldn't do it. Banks would have the option of a war of attrition upwards towards a cluster point where it was no longer profitable to accept deposits, or a rush to the bottom and a cluster point at around the lowest rates customers would be prepared to accept.

    One would benefit all savers whilst leading to heavily reduced bank profits and lending capacity, the other would hurt all savers but deliver the banks a nice profit windfall as customers would have limited other options (short of moving money out of the UK or into alternative savings/investment vehicles with less regulation). No prizes for guessing which option we'd be more likely to see.

    To stop that, you'd really need a nationalised bank to set the 'acceptable' rate. No guarantee that this would necessarily be higher than the current rate for existing savers - especially not given the political temptation to discourage saving during a recession. Not a great sales pitch for effectively wiping out competition in savings accounts.


    Irritating though it is, the only way to ensure you get a good deal on any financial services product is to suffer the hassle and regularly shop around.

    However, it would be well within the capacity of the FCA to influence how banks should present information to customers, and how easy it should be to switch between savings / current accounts.

    Neither of those have harmful side effects (unless you're a bank). ;)
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