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MSE News: OFT to investigate current accounts

edited 30 November -1 at 1:00AM in Budgeting & Bank Accounts
50 replies 3.6K views
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  • JuicyJesusJuicyJesus 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 have a balance of £1000 in your current account for one month the bank will make 41p interest. Most peoples' balances fluctuate and, in most cases, are significantly lower than this.

    If you incur one overdraft fee this will range from between £6 to about £30 for each one. Even if the bank were to lend the £1000 out again at 16.9% (which is very near the top rate for prime personal loans) they'd make £14.08.

    The credit interest argument is a nonsense, especially with base rates as low as they are.
    urs sinserly,
    ~~joosy jeezus~~
  • ConsumeristConsumerist Forumite
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    td_007 wrote: »
    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.
    Although I agree that "free banking" is a myth in general terms, it is a realilty for you as an individual because you are not likely to incur any incidental charges on your account; but someone else is paying the cost of the services which you use - and therein lies the myth.

    Comparing your income from savings with some prospective income as a lender is not really comparing like with like. Why, for example, have you not put your £10k into something like Zopa to become a lender? Probably because of the risks and long-term commitment involved. e.g. no FSCS guarantee and no instant access to your money.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • edited 15 July 2012 at 5:39PM
    ConsumeristConsumerist Forumite
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    edited 15 July 2012 at 5:39PM
    . . . The banks make more from absorbing interest on credit balances than they do from charges!
    This is something the banks would have you believe but offer no evidence to support. You therefore need to trust that banks are honest about what they say, don't you?
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • rb10rb10 Forumite
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    JuicyJesus wrote: »
    If you have a balance of £1000 in your current account for one month the bank will make 41p interest.

    They'll get a lot more than that. That's only 0.5%.
  • JuicyJesusJuicyJesus Forumite
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    rb10 wrote: »
    They'll get a lot more than that. That's only 0.5%.

    See above, I did note the amount of interest they'd get if they lent the money out instead ;)

    It's interesting to see that Consumerist seems to be coming from a completely different position from me but arriving at the same conclusions regarding free banking. I would argue that free banking is unfair to the banks, because they are expected to provide top-notch and easily available services but receive little to no reward for it (and customers will berate them if a service they receive for free is not entirely perfect), and no other business is expected to behave in this way. People complain that there is a reduction in service but don't seem to have worked out that there has been a corresponding reduction in income, and that in general you get what you pay for.

    Consumerist meanwhile seems to be arguing that free banking is unfair to the customer, because those who pay bank charges for overdrafts or returned items are subsidising those who do not. I would tend to agree with his position too, not so sure he'd go along with mine ;)
    urs sinserly,
    ~~joosy jeezus~~
  • So the choice is avoid using a overdaft and going overdrawn to pay charges. stay in credit. Then everyone will have free banking.

    You pay for using the OD. You pay when you save i.e. the bank lend your money at a higher rate - regardless of where base rate is. The only way to actually beat the system is to have ZERO balance on your account. (Free banking and no money for the bank to lend out).
  • rb10rb10 Forumite
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    The only way to actually beat the system is to have ZERO balance on your account. (Free banking and no money for the bank to lend out).

    ... and never use your debit card (which generates income), never want additional services (CHAPS etc), never make ATM withdrawals (which make money for the ATM operator) ... you might as well just close your account at this rate!
  • rb10 wrote: »
    ... and never use your debit card (which generates income), never want additional services (CHAPS etc), never make ATM withdrawals (which make money for the ATM operator) ... you might as well just close your account at this rate!

    Yes but with the exception of CHAPS, all this is free for the consumer.
  • rb10rb10 Forumite
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    Yes but with the exception of CHAPS, all this is free for the consumer.

    It depends.

    If you are going to go down the line of

    foregone interest is costing me money, and so that's to say that I am "paying" for my banking

    then you could easily extend this to say

    merchant fees on debit card usage is inflating the cost of purchasing items in shops, and so I am (albeit indirectly) paying for my debit card in this way

    It's a convoluted way of going about it, but it's only a little more tenuous than the foregone interest argument.

    Personally, I don't see the system as broken. Yes, the banks make a lot of money by paying little or no interest on money in current accounts, but providing current accounts costs money; they have to find ways of getting that money back. And the only place it can come from is us, the customer.
  • edited 15 July 2012 at 11:19PM
    JuicyJesusJuicyJesus Forumite
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    edited 15 July 2012 at 11:19PM
    You pay when you save i.e. the bank lend your money at a higher rate - regardless of where base rate is

    I'm not really sure where anyone got the idea that not being paid money that isn't owed to you is equivalent to paying that same amount of money. You could have a reasonable argument that you are paying if you receive below base rate (I still wouldn't agree, because if you sign up to a current account that doesn't pay interest that's your choice) but saying that banks make money off of money deposited to them and you are therefore paying the amount of profit they generate from these activities is somewhat silly.
    urs sinserly,
    ~~joosy jeezus~~
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