MSE News: Current account market faces full competition inquiry

Archi_Bald

To be fair, they aren't just looking a personal but also at SME accounts, and as of now, they are just consulting, not deciding anything.

All comments to retailbanking@cma.gsi.gov.uk


https://www.gov.uk/government/news/personal-current-accounts-and-small-business-banking-not-working-well-for-customers

I must say though that I am perplexed how they concluded so far that personal current accounts "aren't working well", and it is a mystery to me what they would expect to achieve with a competition inquiry. There is no indication of price fixing, the offers of most providers vary, and it is hard to see that forcing "more competition" onto providers would result in anything but more expensive current accounts for everybody.

Archi_Bald

Pincher wrote: »

You can always innovate. Now that we have computers to keep the accounts updated, instead of shutting the bank at 3:30pm to get on with the paper work, sky's the limit.

It would cost billions to upgrade everybody's systems. For what benefit?

Pincher wrote: »

For example, ALL your money should earn interest, but it's based on a more complicated formula. For example, your money is kept in a deposit account. At the end of each day, the ins and outs on your current account creates a surplus or deficit. The surplus is transferred into the deposit account, but deficit is deducted from the deposit account.

You can designate an amount, say £20k, for mortgage offset, so you don't get any deposit interest (thus no income tax).

The rest of the money will get a variable interest rate, depending on the lowest level it gets to in a set period. So if the deposit account is always above £5,000 in 2014, you get 3%. If the account dips below £1000, you get 0.1%.

I quite like numbers but the sound of this makes me go dizzy. I am not looking for more complexity, and I most certainly do not wish to be treated like sheep and have a bank make my financial decisions for me.

Pincher wrote: »

So, it makes sense to keep your money in one big pot, instead of constantly switching to chase the best rate: which is NOT FUN. If there are people who LIKE checking for a better rate constantly, seek help.

The last thing I want is keep all my money in one big pot, and with one bank. I also do not want to take my eyes off interest rates because different banks offer different rates (I think they call that competition?), and I most certainly would not want to trust a bank to look after my best interests.

Granted, some people might find this attractive because it is the lazy option for looking after your finances.

Fruit_and_Nut_Case

Archi_Bald wrote: »

Granted, some people might find this attractive because it is the lazy option for looking after your finances.

This is my mother's method, despite what I tell her.

System

The UK banking market is a Oligopoly.

They provide most current account facilities at below true cost

Look at overdraft charges or overseas card charges - the big banks all have similar pricing.

Jogle

Pincher wrote: »

You can always innovate. Now that we have computers to keep the accounts updated, instead of shutting the bank at 3:30pm to get on with the paper work, sky's the limit.

For example, ALL your money should earn interest, but it's based on a more complicated formula. For example, your money is kept in a deposit account. At the end of each day, the ins and outs on your current account creates a surplus or deficit. The surplus is transferred into the deposit account, but deficit is deducted from the deposit account.

You can designate an amount, say £20k, for mortgage offset, so you don't get any deposit interest (thus no income tax).

The rest of the money will get a variable interest rate, depending on the lowest level it gets to in a set period. So if the deposit account is always above £5,000 in 2014, you get 3%. If the account dips below £1000, you get 0.1%.

So, it makes sense to keep your money in one big pot, instead of constantly switching to chase the best rate: which is NOT FUN. If there are people who LIKE checking for a better rate constantly, seek help.

Hmmm, while I appreciate what you are envisioning, with the current crop of high interest current accounts, there is no need for the sweeping service. I keep enough money to more than cover all of my monthly expenses for a couple of months in my current account, all earning 3%.

We need to sort out the savings and ISA market, the current account market (for people who don't use overdrafts and have a good credit rating to open whatever account they like) is very healthy at the moment with plenty of competition.

colsten

Heng_Leng wrote: »

Look at overdraft charges or overseas card charges - the big banks all have similar pricing.

Perhaps because their costs are very similar?

They are all subject to the same BoE base rate. They all use either VISA or Mastercard, so their foreign exchange rates are much the same. They all have well oiled systems to manage their current accounts, so they probably have similar running costs.

There's really not much room for originality. And all that would happen if they didn't offer similar deals is that people would complain that they are not all similar.

System

There is no real link between the base rate and overdraft costs.

RBS and Lloyds both charge a fee of about £6 and close to 20% interest. Others such as Barclays and Santander charge costly daily fees.

MasterCard and Visa don't charge extra for European transactions yet banks such as Lloyds charge a loading close to 3% and a transaction charge.

colsten wrote: »

Perhaps because their costs are very similar?

There's really not much room for originality. And all that would happen if they didn't offer similar deals is that people would complain that they are not all similar.

Pincher

Competition means every bank offers the same product, or different products that fit different customer needs? Maybe only 1% of borrowers need and want offset mortgages, that's no reason not to provide it.


The self-employed must have radically different cash flow and overdraft requirements to somebody on a regular salary. One size fit all will not work. I suspect a bank that only caters to the self-employed may be too risky, so it would be preferable for that bank to have two or more current account products, each designed for one type of customer profile.


Saying everyone should constantly chase deals is a bizarre one size fit all mentality. There should be products that are not the headline best deal, but still provide decent value without constant maintenance. Martin Lewis is leading the charge for the converted, so the politicians are just repeating what they think is trendy. Trendy does not mean it's right for everyone.

Archi_Bald

Pincher wrote: »

Saying everyone should constantly chase deals is a bizarre one size fit all mentality. There should be products that are not the headline best deal, but still provide decent value without constant maintenance.

You either get some exceptionally good rates and some bad rates, or you get roughly the same rates for everybody (the one-size mentality that you say you find bizarre). The latter sounds too communist for me. If people cannot get off their backsides and look for better value now and then, they have deserved getting what they get.

"Constant" is a vast exxageration when it comes to monitoring changes in interest rates. You can check once a month, or once a quarter, on price comparison websites. You can even subscribe to a service that emails you when new best rates become available. There are some good souls on MSE who maintain some "best rates" threads.

Pincher wrote: »

Martin Lewis is leading the charge for the converted, so the politicians are just repeating what they think is trendy.

you lost me there - how does ML's leading the charge relate to politicians? What charge is ML leading in the context of this thread?

Pincher

Archi_Bald wrote: »

how does ML's leading the charge relate to politicians? What charge is ML leading in the context of this thread?

Switch, switch, switch is the slogan. It's easy to jump on the bandwagon and say that's the solution, instead of coming up with their own half baked idea like freezing prices after they increased them.


What it actually does is to drum up business for comparison/switching sites. This adds an extra layer of cost, which the consumer ends up paying eventually.


John Lewis accepting credit cards was a bad thing, because the price now has to include the processing fee. The 1% cashback diverts attention from the 2~3% the credit card adds to the price.