2015 - No fee bank accounts. Where are they?

Ballard

I have never bothered to get to grips with quoting multiple entries in one go so I'll stick with this response to absolutereturn:

Firstly, you do make some valid points but I would counter that:

1. Banks have changed and borrowing money from one customer to lend to another is now a small part of their business. At the same time, customers have changed. Historically they had a chequebook and withdrew money at the branch during the week. Nowadays they demand access to their funds by means of ATMs, FP & debit cards 24/7. This is progress on both sides.

2. I don't understand your point that banks can lend money that they don't have. Do you mean that they can lend their customer's funds? If so then yes they can. That's how they are supposed to operate.

You lost me somewhat on your other points I'm afraid.

Having said that I think that it's fair enough, as part of their banking licences, for banks to be expected to offer basic accounts to those who need it.

absolutereturn

Ballard wrote: »

I have never bothered to get to grips with quoting multiple entries in one go so I'll stick with this response to absolutereturn:

Firstly, you do make some valid points but I would counter that:

1. Banks have changed and borrowing money from one customer to lend to another is now a small part of their business.

Yes and no. Retail banking is still based around customers having a range of accounts which include savings, investments, ISAs, pensions, etc. as well as borrowing money, and customers are not just little people but also big bu$ine$$e$ who run huge amounts of money through the banks.

Ballard wrote: »

At the same time, customers have changed. Historically they had a chequebook and withdrew money at the branch during the week. Nowadays they demand access to their funds by means of ATMs, FP & debit cards 24/7. This is progress on both sides.

These systems are all automated and, as with any computerised system, the initial outlay to set it up is very high but once they're in place, they can handle extra users without hardly any added cost. As the systems have been in place for years, most of their cost will have already been covered.

Ballard wrote: »

2. I don't understand your point that banks can lend money that they don't have. Do you mean that they can lend their customer's funds? If so then yes they can. That's how they are supposed to operate.

No, I didn't mean that. I meant they can lend much more than the deposits they hold. See here for a full explanation: http://www.learningmarkets.com/understanding-the-fractional-reserve-banking-system/

The Federal Reserve explains it this way:

The fact that banks are required to keep on hand only a fraction of the funds deposited with them is a function of the banking business. Banks borrow funds from their depositors (those with savings) and in turn lend those funds to the banks’ borrowers (those in need of funds). Banks make money by charging borrowers more for a loan (a higher percentage interest rate) than is paid to depositors for use of their money. If banks did not lend out their available funds after meeting their reserve requirements, depositors might have to pay banks to provide safekeeping services for their money. For the economy and the banking system as a whole, the practice of keeping only a fraction of deposits on hand has an important cumulative effect. Referred to as the fractional reserve system, it permits the banking system to “create” money.

How Fractional Reserve Banking Works
When you put your money into a bank, the bank is required to keep a certain percentage, a fraction, of that money on reserve at the bank, but the bank can lend the rest out. For instance, if you deposit $100,000 at the bank and the bank has a reserve requirement of 10 percent, the bank must keep $10,000 of your money on reserve and can lend out the $90,000.
Now, if you take this out a little further, you will see that your original $100,000 can become $ by the time it is all over. Here’s how:

• You deposit $100,000 Your bank loans someone else $90,000
• That person deposits $90,000 Their bank loans someone else $81,000
• That person deposits $81,000 Their bank loans someone else $72,900
• That person deposits $72,900 Their bank loans someone else $65,610
• That person deposits $65,610 Their bank loans someone else $59,049
• That person deposits $59,049 Their bank loans someone else $53,144
• That person deposits $53,144 Their bank loans someone else $47,829 – And so on

Ultimately, your initial $100,000 can grow into $1,000,000 with a 10 percent reserve requirement.
To find out exactly how much money the fractional reserve banking system can theoretically create with your initial deposit, you can use the Money Multiplier equation:
– Total Money Created = Initial Deposit x (1 / Reserve Requirement)
For example, with the numbers we have used above, your equation would look like this:
– $1,000,000 = $100,000 x (1 / 0.10)

PeacefulWaters wrote: »

Really, they can't.

I'm afraid you're wrong there, they CAN, as clearly shown above. And this has been going on since the days of the Great Depression!

Ballard

So I deposit £100,000 at, say, 1%pa. my bank then lends £90,000 to another customer at, say, 3%pa. They in turn deposit it with the bank for 1%...

Seems good business to me.

absolutereturn

Ballard wrote: »

So I deposit £100,000 at, say, 1%pa. my bank then lends £90,000 to another customer at, say, 3%pa. They in turn deposit it with the bank for 1%...

Seems good business to me.

It has been good for business most of the time (except when things went pear-shaped such as 1929 and 2007/08) but then there's no reason/excuse to charge for banking services, is there?

mgdavid

I've had a current account since 1967 and have never paid a penny in fees or charges...

absolutereturn

mgdavid wrote: »

I've had a current account since 1967 and have never paid a penny in fees or charges...

In 1967 the idea of charging people for putting their money in a bank would have seemed totally absurd! Bank accounts were not essential when people got paid cash and transacted mostly in cash so why would anyone want to pay for a bank account? Those who had enough money to make safety a concern could just get a safe!

KJSmith

absolutereturn wrote: »

I'm afraid you're wrong there, they CAN, as clearly shown above.

In the context which you used no they can't.

absolutereturn wrote: »

You and the banks are totally different things. If you were paying my bills you'd be doing so with your own money, however, the banks can make money out of nothing.

mgdavid

absolutereturn wrote: »

In 1967 the idea of charging people for putting their money in a bank would have seemed totally absurd! Bank accounts were not essential when people got paid cash and transacted mostly in cash so why would anyone want to pay for a bank account? Those who had enough money to make safety a concern could just get a safe!

Agreed but I haven't been paid in cash since 1970 and still no fees or charges ever since.

eDicky

colsten wrote: »

So bottom line is we need to be a bit real.

And the reality is that banks make healthy profits, plain for all to see in their annual reports, easily covering the expenses of providing retail banking without charges.

When banks do fail it's because of incompetent management, bad strategy, rogue traders, etc, not because they are not charging their retail customers enough.

Of course they will try to gouge as much income as possible from customers and the only limitation to their doing so comes from regulation and the 'agreements' with government, such as the current one to offer basic free banking for all. The banks' having any real difficulty to afford to do so is an amusing notion.

eDicky

eDicky wrote: »

and the only limitation to their doing so comes from regulation and the 'agreements' with government,

...and a competitive market of course.