MONEY COMMENT
Your Money Makes Me Rich

By Cliff D'Arcy
October 28, 2004

Recently, I realised that I've been investing in shares for half of my life.

I'm in my mid-thirties and I've been dabbling in shares since my late teens. I've had some good years and some bad years. I've made a few fabulous fortunes and lost some, too. But, overall, investing in shares has been very rewarding, both financially and intellectually.

As I was clearing out huge mounds of paperwork in preparation for moving house, I noticed something interesting about my personal share-owning history. At almost every point in my life, I've owned shares in one or more banks. Abbey National, Alliance & Leicester, Bradford & Bingley, Egg, HBOS, Lloyds TSB and Royal Bank of Scotland, I've owned them all!

That's partly because I've worked for a string of financial services companies since 1987, including a big bank or two. After all, investing in companies you know well can be rewarding, plus you can buy discounted shares in your employer. Another reason is I've picked up windfall shares when building societies converted to banks.

In addition, it's because I know a little stock-market history. In 1900, when Queen Victoria was our monarch, banks accounted for roughly a sixth of the value of the entire stock market. Fast-forward 104 years to the present day, and you find that the eleven UK-listed banks are worth £265 billion. That's almost a fifth (19%) of the stock market's value of £1,380 billion.

In those 104 years, Britain has changed hugely. Railway companies – once the powerhouse of the Victorian stock market – are now small fry. Internet companies have boomed and busted. And yet banks grind on, making more and more money from British enterprise. That's one compelling reason to invest in banks.

Yet another reason is that banks pay handsome dividends (income) to their shareholders. At the moment, the average dividend yield (akin to a savings interest rate) for these eleven banks comes to about 4.7%. The yield for the rest of the UK stock market is around 3.2%, so banking shares are paying almost half as much again in income. Often, you'd get a better return investing in a bank's shares than in its savings accounts!

Finally, UK consumers' financial apathy makes banks – and their shareholders – very rich. By failing to shop around for financial products (your mortgage, personal loan, credit card, insurance, savings and current account, etc.), you're massively boosting your bank's profits. Financial laziness, often mistaken for brand loyalty, costs you a packet in the long run!

So, unless you want to keep lining my pockets, wise up today. I'm willing to be a little poorer if you promise to be a little savvier! ;0)

More: Find better mortgages, credit cards, insurance, savings and current accounts.

Cliff owns shares in HBOS, the parent company of the Halifax and Bank of Scotland.