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MSE News: OFT to investigate current accounts

edited 30 November -1 at 1:00AM in Budgeting & Bank Accounts
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  • JuicyJesusJuicyJesus Forumite
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    That suggests to me there is little competition in banking. In a competitive market prices tend to converge.

    Prices have mostly converged. Prices for basic banking services are universally zero or near enough zero. If any bank deviated from this their free competitors would crush them.
    urs sinserly,
    ~~joosy jeezus~~
  • ConsumeristConsumerist Forumite
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    JuicyJesus wrote: »
    Prices have mostly converged. Prices for basic banking services are universally zero or near enough zero. If any bank deviated from this their free competitors would crush them.
    Not according to opinions4u earlier. You can't both be right.

    You have, however, restricted your comparison only to "basic" services which you can then go on to define to suit your convenience.

    So there are lies, damned lies and statistics, as ever.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • JuicyJesusJuicyJesus Forumite
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    Not according to opinions4u earlier. You can't both be right.

    You have, however, restricted your comparison only to "basic" services which you can then go on to define to suit your convenience.

    So there are lies, damned lies and statistics, as ever.

    We're both right.

    Most people use current accounts for payment services (debit cards, standing orders, Direct Debits, cheques, bank transfers) and the receipt of wages. No mainstream bank charges for these services on personal accounts. There is no price competition on this front. Certain services (CHAPS, drafts) do attract different prices but these are niche services which a small minority of people will ever need to utilise to any great degree, thus rendering it somewhat irrelevant.

    Some people borrow on these accounts - there is price differentiation on borrowing costs, but aside from certain banks' pricing structures (Halifax and Santander and their flat fees spring to mind) most of these are around the same level, within a few percentage points of each other. Not much competition there. Meanwhile, current accounts that pay credit interest or a monthly reward a la Halifax are very much in a minority. Most pay nil, or close to nil.

    o4u makes the point that some accounts offer better deals than others. This is true. My point is that most accounts offer the same or thereabouts. A few outlying examples do not change the fact that by and large, the bog-standard free personal current account offered by most banks is much of a muchness, with the only real differentiating factor being the quality of service provided and (possibly) borrowing costs. Compare this, for example, to business banking or loans, where there is an intense variability in pricing structures between banks.
    urs sinserly,
    ~~joosy jeezus~~
  • Alpine_StarAlpine_Star Forumite
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    opinions4u wrote: »
    Price up identical iPads at 6 high street retailers.

    Let me know if you find any differences at all.

    Price up current accounts from the five main high street bank brands and Natiowide Building Society. Big pricing differences in credit and overdrawn.

    It's not as simple as that. Go into any high street bank and ask how much a current account might cost - chances are you'd never get an answer and if you did it wouldn't be possible to explain in less than 5000 words and even then it would be based on all manner of contingent factors. Making a truly informed choice is beyond most consumers and as such a genuinely competitive market just isn't possible.

    The ICB found that the lack of competition ran much deeper than just price:

    ''On the demand side, competition between banks
    on current accounts is muted by difficulties of switching between providers and by lack of transparency about banking services on offer. In short, consumers are often not well placed to make informed choices between effectively competing suppliers of banking services.''
  • JuicyJesusJuicyJesus Forumite
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    I think the issue of "switching being hard" is largely a myth. Things can go wrong with the automated switching process, but this is largely due to issues with DD originators screwing things up at their end and claiming from the wrong accounts. If you wanted to do it manually to be safe, it's probably about half an hour of phone calls, tops - not ideal, but a negligible amount of time really.

    I'm also not sure how there is a lack of transparency in what services are on offer. I'm not even sure there's all that much to be transparent about.
    urs sinserly,
    ~~joosy jeezus~~
  • ConsumeristConsumerist Forumite
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    JuicyJesus wrote: »
    Most people use current accounts for payment services (debit cards, standing orders, Direct Debits, cheques, bank transfers) and the receipt of wages. No mainstream bank charges for these services on personal accounts.
    And my point is that it must be accepted that these services come at a cost to the bank and if you are not paying those costs then who is? And is it fair that others should pay the cost of your banking services? Or are you suggesting that credit balances on your current account at zero interest are paying for them?
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • JuicyJesusJuicyJesus Forumite
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    And my point is that it must be accepted that these services come at a cost to the bank and if you are not paying those costs then who is? And is it fair that others should pay the cost of your banking services? Or are you suggesting that credit balances on your current account at zero interest are paying for them?

    You are arguing with me on that point when I agree with you. ;) My point was rather that free banking stifles competition as there is no meaningful difference between most current accounts.
    urs sinserly,
    ~~joosy jeezus~~
  • ConsumeristConsumerist Forumite
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    JuicyJesus wrote: »
    You are arguing with me on that point when I agree with you. ;) My point was rather that free banking stifles competition as there is no meaningful difference between most current accounts.
    Sorry if I misunderstood you.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • Gordon_the_MoronGordon_the_Moron Forumite
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    To all those who say an end to 'free banking' would be fairer because it shouldn't be subsidised by overdraft interest/charges something you've not mentioned. It is also subsidised by people with credit balances earning little or no interest. The banks make more from absorbing interest on credit balances than they do from charges!
    If you don't like what I say slap me around with a large trout and PM me to tell me why.

    If you do like it please hit the thanks button.
  • td_007td_007 Forumite
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    Callling use of current accounts FREE is a myth - it is not even free if I do not incur any charges or even am able to earn some interest.

    An example for Halifax with £10,000

    I earn:
    £5/month in Reward a/c circulating £1K/month. For 1 year=£60
    £280 (gross @2.8% online saver on £10K)/year
    Total earning= £340

    If I borrow the £10000 that I have in Halifax for 1 year
    Interest charged=£466 (@8.8% using the Halifax online loan calculator)

    Difference=£466-£340 = £126 (profit/charge that Halifax makes)

    This is ofcourse the best case scenario...the lending rates will be typically higher and hence the profit that the bank makes from my money it holds will be higher that what the Bank gives in interest/reward. This difference is the CHARGE for using a current a/c.
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