MSE News: OFT to investigate current accounts

I understand that it costs the bank to provide a current account. What I do not accept is that they make a loss on running current accounts.

If the banks were losing money on current accounts they would stop offering them.

Also, banks are advertising current accounts and some even offer financial incentives to move to them. Why would they pay to win unprofitable business?

The banks make money on investing the money that is in my account. Although the rate of return on the amount in a typical current account is small the returns to a bank are much higher as they are investing the deposits across all the accounts they hold.

I accept that if I overdrawn there will be a charge and that interest is payable on overdrafts.

In addition to investing the deposits the banks want the cross sales from the current accounts such as mortgages, personal loans, insurance, pensions and possibly business accounts.

However, the banks will make it appear that they are making a loss by showing all the costs asssociated with running an account but only showing the obvious returns.

The banks usedto charge for current accounts and would love to reintroduce charges, but none of them want to move first as they will lose too much business. However, if they are told the current practise is unfair then they can say they didn't want to charge but were forced to.

All of this because a minority of people can't manage their financial affairs and expect the majority to subsidise them.

I do not work for a bank and I believe that there are a lot of unsound/unfair practices within the banking sector but they way that current accounts are run isn't one of them.

opinions4u wrote: »

The current account market is innovative and competitive.

:rotfl:

I accept that the current account market is innovative. It's a question of who can get away with charging the most before there is a public outcry.

Halifax, I think, started the greediest approach to overdrafts by abandoning the interest charge on overdrafts which was a fair system because those with large and consistent overdrafts paid the most. Since they got away with it, despite initial complaints from customers, the other banks followed their lead.

And what was their excuse? They claimed it was easier for their customers to understand. It is now emerging that banks in general are basically dishonest and the sooner the current system is dismantled and reassembled for the benefit of bank customers, the better.

All this, of course, will take some time because of the taxes they used to generate but, having now exposed banking as a generally corrupt enterprise, we have an opportunity to rebuild it.

We must, of course, expect the banking lobby on this site to express the view that banks really are whiter than white and have been badly misunderstood. The rest of us know better.

Jezzamk wrote: »

All of this because a minority of people can't manage their financial affairs and expect the majority to subsidise them.

How do you work that one out?
I think it's been pretty well proven that it does not cost banks to manage accounts frequently going into the red anywhere close to what they charge their customers.

Believe me, I've been there and it's truly crippling what they would charge in a given month if you have cash flow issues.
Thankfully I'm financially stable these days, but sympathise with those still dealing with it - and any suggestion this group of customers subsidises well ran accounts is frankly insulting.

opinions4u wrote: »

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

That suggests to me there is little competition in banking. In a competitive market prices tend to converge.

pqrdef wrote: »

And then people say it's a cartel and there's no competition.

But a cartel doesn't respond to market conditions, it tries to set them. With competition, the market responds to market conditions so that supply meets demand.