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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 13th Jul 12, 10:59 AM
    • 2,324Posts
    • 971Thanks
    Former MSE Helen
    MSE News: OFT to investigate current accounts
    • #1
    • 13th Jul 12, 10:59 AM
    MSE News: OFT to investigate current accounts 13th Jul 12 at 10:59 AM
    "The OFT today launched a review of the market, aimed at improving competition and ensuring banks are customer-focused..."

Page 2
    • Consumerist
    • By Consumerist 14th Jul 12, 3:04 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    And then people say it's a cartel and there's no competition.
    Originally posted by pqrdef
    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.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • JuicyJesus
    • By JuicyJesus 14th Jul 12, 3:08 PM
    • 3,550 Posts
    • 4,059 Thanks
    JuicyJesus
    That suggests to me there is little competition in banking. In a competitive market prices tend to converge.
    Originally posted by Consumerist
    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~~
    • Consumerist
    • By Consumerist 14th Jul 12, 3:46 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    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.
    Originally posted by JuicyJesus
    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.
    • JuicyJesus
    • By JuicyJesus 14th Jul 12, 4:34 PM
    • 3,550 Posts
    • 4,059 Thanks
    JuicyJesus
    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.
    Originally posted by Consumerist
    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 Star
    • By Alpine Star 14th Jul 12, 5:08 PM
    • 1,259 Posts
    • 611 Thanks
    Alpine Star
    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.
    Originally posted by opinions4u
    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.''
    • JuicyJesus
    • By JuicyJesus 14th Jul 12, 5:27 PM
    • 3,550 Posts
    • 4,059 Thanks
    JuicyJesus
    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~~
    • Consumerist
    • By Consumerist 14th Jul 12, 5:59 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    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.
    Originally posted by JuicyJesus
    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.
    • JuicyJesus
    • By JuicyJesus 14th Jul 12, 6:09 PM
    • 3,550 Posts
    • 4,059 Thanks
    JuicyJesus
    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?
    Originally posted by Consumerist
    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~~
    • Consumerist
    • By Consumerist 14th Jul 12, 6:29 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    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.
    Originally posted by JuicyJesus
    Sorry if I misunderstood you.
    Warning: In the kingdom of the blind, the one-eyed man is king.
    • Gordon the Moron
    • By Gordon the Moron 15th Jul 12, 10:39 AM
    • 1,453 Posts
    • 739 Thanks
    Gordon the Moron
    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_007
    • By td_007 15th Jul 12, 10:56 AM
    • 1,152 Posts
    • 417 Thanks
    td_007
    There is no FREE banking
    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.
    • JuicyJesus
    • By JuicyJesus 15th Jul 12, 2:39 PM
    • 3,550 Posts
    • 4,059 Thanks
    JuicyJesus
    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!
    Originally posted by Gordon the Moron
    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~~
    • Consumerist
    • By Consumerist 15th Jul 12, 4:15 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    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.
    Originally posted by td_007
    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.
    • Consumerist
    • By Consumerist 15th Jul 12, 4:29 PM
    • 5,226 Posts
    • 2,610 Thanks
    Consumerist
    . . . The banks make more from absorbing interest on credit balances than they do from charges!
    Originally posted by Gordon the Moron
    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?
    Last edited by Consumerist; 15-07-2012 at 4:39 PM.
    Warning: In the kingdom of the blind, the one-eyed man is king.
  • rb10
    If you have a balance of 1000 in your current account for one month the bank will make 41p interest.
    Originally posted by JuicyJesus
    They'll get a lot more than that. That's only 0.5%.
    • JuicyJesus
    • By JuicyJesus 15th Jul 12, 5:08 PM
    • 3,550 Posts
    • 4,059 Thanks
    JuicyJesus
    They'll get a lot more than that. That's only 0.5%.
    Originally posted by rb10
    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~~
  • MoneySaverLog
    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).
  • rb10
    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).
    Originally posted by MoneySaverLog
    ... 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!
  • MoneySaverLog
    ... 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!
    Originally posted by rb10
    Yes but with the exception of CHAPS, all this is free for the consumer.
  • rb10
    Yes but with the exception of CHAPS, all this is free for the consumer.
    Originally posted by MoneySaverLog
    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.
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