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Five ways the banks fleece us - Times Online
January 20, 2008
Five ways the banks fleece us
Customers face higher current account fees as banks prepare to unveil bumper profits
Clare Francis
BRITAIN’S high-street banks have sneakily raised the cost of their current accounts this year, despite a High Court showdown with the Office of Fair Trading (OFT), in an effort to squeeze more profits from customers.
The news comes as banks are expected to announce bumper results in the coming weeks. The “Big Five” – Barclays, Halifax Bank of Scotland, HSBC, Lloyds TSB and Royal Bank of Scotland, which owns NatWest – will report staggering profits of £39.05 billion for 2007, up from £37.5 billion the previous year, according to Brewin Dolphin, a stockbroker. In a time of global market turmoil this demonstrates how much the banks milk customers.
As the banks defended their overdraft charges in a High Court action brought by the OFT last week, new research revealed that they were already clawing back the potential costs of any clampdown on their fees.
Nationwide, HSBC, Smile and Intelligent Finance have all quietly introduced current-account charges that will net them an estimated £173m in extra revenue over the next 12 months, according to research by Moneysupermarket, a comparison site.
Smile, the internet bank, has caused outrage among customers by raising its authorised overdraft rate by 4 percentage points to 15.9%, while the rate if you are in credit has been chopped by a quarter point to 2.75%. The cost of unauthorised borrowing has fallen 9 percentage points, but the unauthorised overdraft fee has increased from £15 to £20.
Meanwhile, HSBC subsidiary HFC was fined £1m for mis-selling loan protection insurance last week, in what has been branded an even bigger scandal than bank charges. We highlight the five worst rip-offs and show how you can get back at the banks.
Useless loan insurance
Loan insurance, which is supposed to cover your mortgage, credit card or loan repayments if you are unable to work, is one of the biggest moneyspinners for banks, yet many customers don’t even realise they have it – or know how much it is costing them.
Payment protection insurance (PPI) is routinely sold alongside mortgages by brokers and can add £72 a month to the cost of a £200,000 home loan – or £21,600 over a 25-year term – though analysts estimate nearly three-quarters of people won’t need it.
Institutions sell between 6.5m and 7.5m policies each year and rake in an estimated £5.1 billion annually in premiums, according to the OFT – more than from current-account, mortgage and credit-card fees put together.
In the worst cases, self-employed workers and housewives were sold the policies even though you must generally be in full-time employment to be able to claim.
The good news is that millions of people who have been mis-sold policies can claim a refund. There are about 20m PPI policies in Britain, and if 70% have been mis-sold, as analysts believe, 14m could be in line for a refund, averaging £1,500. This means a potential bill for providers of £21 billion.
Mike Naylor at Uswitch, a comparison site, said: “This is potentially a massive scandal and you should fight for a refund.”
Current account charges
Banks make about £3.5 billion a year by charging us up to £39 when we exceed authorised overdraft limits – even by just a few pence. The OFT believes the fees should cover only the admin costs – roughly £4 – and is taking eight firms to court over the issue.
But there are already signs the banks will not take the challenge lying down, so prepare for an increase in the cost of your current account.
Clydesdale and Yorkshire banks, for example, hiked authorised overdraft rates 3.31 percentage points to 12.95% earlier this month, though their rates if you are in credit went down by a quarter point.
Kevin Mountford at Moneysupermarket said: “These recent changes highlight just how easy it is for banks to recover their costs.”
Sky-high mortgage fees
A homebuyer purchasing the typical detached property in the southeast, worth about £500,000, according to Halifax, could now pay £17,500 just to arrange a mortgage as lenders hike their charges to offset the credit crunch. This figure is based on Northern Rock’s two-year fix at 5.59% with a 3.5% fee. Nearly one in ten lenders now offer uncapped fees in a bid to boost profits.
Two years ago, borrowers paid an average of £450 to set up a mortgage. Today, the average is about £1,000, netting lenders an extra £1.1 billion a year in revenue, according to research from L&C Mortgages.
Opaque savings accounts
Savings accounts have never been more confusing, according to analysts, with banks luring customers with attractive headline rates, only to slash the interest if you don’t fulfil certain onerous conditions. The tactic costs savers an estimated £860m a year in lost interest according to Moneysupermarket research.
A&L’s Esaver is an easy access account that promises to pay 6.5% – but you could earn just 4.28% in certain circumstances.
You earn no interest in any month you make a withdrawal (expect July) and the rate includes a 12-month bonus of 0.35 percentage points. You would earn just 4.28% if you made five withdrawals a year, including one in July, according to adviser AWD Chase de Vere. If you had £25,000 in your account and withdrew £1,000 each time, you would earn £490 less over the year.
Credit card tricks
In 2006, the OFT ruled that card firms could charge customers no more than £12 if they were late making a payment, or if they exceeded their credit limit. However, card providers have simply increased a raft of other fees and hiked interest rates to recoup the lost revenue. Recent changes are thought to be netting them about £30m extra a year.
Royal Bank of Scotland, for example, now charges some customers if they fail to inform it they have moved house. Annual fees are also creeping back – Lloyds TSB is charging £35 a year if you don’t use their card often.
Moneyfacts found that 125 changes had been made to credit-card rates and fees between September and November last year, including higher charges for foreign usage and higher balance-transfer fees.
MBNA’s Reward American Express use a common trick. It offers a 12-month interest-free period on balance transfers and you receive reward points every time you spend on the card. But purchases incur interest at 15.9% after the first three months.
January 20, 2008
Five ways the banks fleece us
Customers face higher current account fees as banks prepare to unveil bumper profits
Clare Francis
BRITAIN’S high-street banks have sneakily raised the cost of their current accounts this year, despite a High Court showdown with the Office of Fair Trading (OFT), in an effort to squeeze more profits from customers.
The news comes as banks are expected to announce bumper results in the coming weeks. The “Big Five” – Barclays, Halifax Bank of Scotland, HSBC, Lloyds TSB and Royal Bank of Scotland, which owns NatWest – will report staggering profits of £39.05 billion for 2007, up from £37.5 billion the previous year, according to Brewin Dolphin, a stockbroker. In a time of global market turmoil this demonstrates how much the banks milk customers.
As the banks defended their overdraft charges in a High Court action brought by the OFT last week, new research revealed that they were already clawing back the potential costs of any clampdown on their fees.
Nationwide, HSBC, Smile and Intelligent Finance have all quietly introduced current-account charges that will net them an estimated £173m in extra revenue over the next 12 months, according to research by Moneysupermarket, a comparison site.
Smile, the internet bank, has caused outrage among customers by raising its authorised overdraft rate by 4 percentage points to 15.9%, while the rate if you are in credit has been chopped by a quarter point to 2.75%. The cost of unauthorised borrowing has fallen 9 percentage points, but the unauthorised overdraft fee has increased from £15 to £20.
Meanwhile, HSBC subsidiary HFC was fined £1m for mis-selling loan protection insurance last week, in what has been branded an even bigger scandal than bank charges. We highlight the five worst rip-offs and show how you can get back at the banks.
Useless loan insurance
Loan insurance, which is supposed to cover your mortgage, credit card or loan repayments if you are unable to work, is one of the biggest moneyspinners for banks, yet many customers don’t even realise they have it – or know how much it is costing them.
Payment protection insurance (PPI) is routinely sold alongside mortgages by brokers and can add £72 a month to the cost of a £200,000 home loan – or £21,600 over a 25-year term – though analysts estimate nearly three-quarters of people won’t need it.
Institutions sell between 6.5m and 7.5m policies each year and rake in an estimated £5.1 billion annually in premiums, according to the OFT – more than from current-account, mortgage and credit-card fees put together.
In the worst cases, self-employed workers and housewives were sold the policies even though you must generally be in full-time employment to be able to claim.
The good news is that millions of people who have been mis-sold policies can claim a refund. There are about 20m PPI policies in Britain, and if 70% have been mis-sold, as analysts believe, 14m could be in line for a refund, averaging £1,500. This means a potential bill for providers of £21 billion.
Mike Naylor at Uswitch, a comparison site, said: “This is potentially a massive scandal and you should fight for a refund.”
Current account charges
Banks make about £3.5 billion a year by charging us up to £39 when we exceed authorised overdraft limits – even by just a few pence. The OFT believes the fees should cover only the admin costs – roughly £4 – and is taking eight firms to court over the issue.
But there are already signs the banks will not take the challenge lying down, so prepare for an increase in the cost of your current account.
Clydesdale and Yorkshire banks, for example, hiked authorised overdraft rates 3.31 percentage points to 12.95% earlier this month, though their rates if you are in credit went down by a quarter point.
Kevin Mountford at Moneysupermarket said: “These recent changes highlight just how easy it is for banks to recover their costs.”
Sky-high mortgage fees
A homebuyer purchasing the typical detached property in the southeast, worth about £500,000, according to Halifax, could now pay £17,500 just to arrange a mortgage as lenders hike their charges to offset the credit crunch. This figure is based on Northern Rock’s two-year fix at 5.59% with a 3.5% fee. Nearly one in ten lenders now offer uncapped fees in a bid to boost profits.
Two years ago, borrowers paid an average of £450 to set up a mortgage. Today, the average is about £1,000, netting lenders an extra £1.1 billion a year in revenue, according to research from L&C Mortgages.
Opaque savings accounts
Savings accounts have never been more confusing, according to analysts, with banks luring customers with attractive headline rates, only to slash the interest if you don’t fulfil certain onerous conditions. The tactic costs savers an estimated £860m a year in lost interest according to Moneysupermarket research.
A&L’s Esaver is an easy access account that promises to pay 6.5% – but you could earn just 4.28% in certain circumstances.
You earn no interest in any month you make a withdrawal (expect July) and the rate includes a 12-month bonus of 0.35 percentage points. You would earn just 4.28% if you made five withdrawals a year, including one in July, according to adviser AWD Chase de Vere. If you had £25,000 in your account and withdrew £1,000 each time, you would earn £490 less over the year.
Credit card tricks
In 2006, the OFT ruled that card firms could charge customers no more than £12 if they were late making a payment, or if they exceeded their credit limit. However, card providers have simply increased a raft of other fees and hiked interest rates to recoup the lost revenue. Recent changes are thought to be netting them about £30m extra a year.
Royal Bank of Scotland, for example, now charges some customers if they fail to inform it they have moved house. Annual fees are also creeping back – Lloyds TSB is charging £35 a year if you don’t use their card often.
Moneyfacts found that 125 changes had been made to credit-card rates and fees between September and November last year, including higher charges for foreign usage and higher balance-transfer fees.
MBNA’s Reward American Express use a common trick. It offers a 12-month interest-free period on balance transfers and you receive reward points every time you spend on the card. But purchases incur interest at 15.9% after the first three months.
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