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FOOL'S EYE VIEW
By
One thing I never tire of is criticising the high-street banks for selling naff financial products. Although increased competition has forced them to improve their product ranges in recent years, they still sell some real dogs. In fairness, it's hugely expensive to maintain a national branch network, so the big banks' products must incorporate higher profit margins than those of their smaller and online rivals. Furthermore, they have slashed staffing levels and closed hundreds of branches in an attempt to maintain their profitability (but not their service!). However, there is such a thing as excessive profit, and many of the high-street firms are cashing in on consumer ignorance and inertia. Here's what I mean: Bank accounts According to independent financial researcher Moneyfacts, these current accounts pay credit interest of 2.5% a year or more:Company Account Credit interest
Lloyds TSB Classic Plus 4.12%*
Each of these products comes from a high-street bank or its online subsidiary, so what's the problem? Well, the vast majority of customers don't have one of these decent accounts. In fact, almost seven out of ten people have one of the following shockers, all of which pay a miserly 0.1% a year on credit balances:
Cahoot Current 3.3%
Smile Current 3%
Intelligent Finance Current 2.72%
Halifax Current 2.5% (if you pay in at least £1,000 a month)
* If you pay in at least £2k p.m.; 0.1% is paid on the balance in excess of £5k.
Bank Account Abbey Abbey Account*What's more, these seven inferior accounts charge annual interest rates of up to 17.9% APR on authorised overdrafts, with fees on top. In contrast, the Best Buy accounts for overdrafts all charge annual interest of 8.7% APR or less, plus three charge no interest for an introductory period.
Barclays Bank Account HSBC Bank Account Lloyds TSB Classic NatWest Current Plus Royal Bank of Scotland IPCA Woolwich Current
* With overdraft at 8.7% APR. Rises to 2.5% if you choose an o/d rate of 14.7% APR.
Mortgages
The big banks have always been guilty of over-charging us for home loans. In this article (and this one), we showed that the standard variable rates - the bog-standard rate you pay if you're not on a special-rate deal - of the UK's biggest mortgage lenders can be up to 2% higher than the Best Buys.
According to Moneyfacts, these building societies have the lowest standard rates:
Lender Standard variable rate Hinkley & Rugby BS 4.09% Norwich & Peterborough BS 4.19% Scarborough BS 4.39% Loughborough BS 4.45%Now check out the steep rates of the ten biggest mortgage lenders:
Lender Standard variable rate HSBC 4.74% Nationwide BS 4.89% Northern Rock 5.74% Abbey 5.75% Lloyds TSB/C&G 5.75%With the admirable exception of HSBC and Nationwide BS, this looks like a cosy little cartel, with the major lenders charging between 5.74% and 5.84%.
Halifax/Bank of Scotland 5.75%/5.80% Alliance & Leicester 5.79% Barclays/Woolwich 5.79% Bradford & Bingley 5.79% Royal Bank of Scotland/NatWest 5.84%
So, if you're paying one of these lenders' standard variable rates and can move without paying severe penalties, it's time to remortgage. The best special-rate deals can be 2%+ below the rates of the big lenders, so you could easily save a fortune.
Credit cards
Let's examine the standard interest rates charged by the big banks' credit cards:
Card issuer Card Standard APR for purchases Abbey MasterCard/Visa 15.9% HSBC MasterCard/Visa 15.9%The standard APRs of Moneyfacts' Best Buys vary between 8% and 11.8% - around half the above rates. Arguably, the big banks are charging us twice as much interest on our credit cards as they need to. Of course, if you have a balance on one of these cards, our advice would be to shift it to one of the many cards that charge no interest for introductory periods.
Royal Bank of Scotland Classic MasterCard/Visa 16.9% Woolwich Open Plan Visa 16.9%
NatWest MasterCard/Visa 17.4%
Lloyds TSB Classic MasterCard/Visa 17.9% Barclays MasterCard/Visa Up to 24.9%
Personal loans
According to Moneyfacts, you can borrow £5,000 over three years for as little as:
Lender APR Monthly repayment Total amount repayable Lombard Direct 6.0%* £151.64 £5,459.04 Tesco 6.2% £152.26 £5,481.36 Liverpool Victoria 6.2%* £152.28 £5,482.08 Sainsbury's Bank 6.5% £152.82 £5,501.52 Cahoot 6.6%* £153.04 £5,509.44 * Typical rate - you'll pay more if you don't have a first-class credit history.Note that none of these loans include over-priced payment protection insurance. Now let's take a look at the big banks' loans (for new customers):
Lender APR Monthly repayment Total amount repayable Lloyds TSB 8.9% £158.07 £5,690.52 Abbey 9.3%* £158.83 £5,717.88 Woolwich 9.9%* £160.42 £5,775.12 Barclays 9.9%* £160.43 £5,775.48 Royal Bank of Scotland 12.9%* £165.37 £5,953.32 NatWest 12.9%* £167.22 £6,019.92 HSBC 13.9% £168.68 £6,072.48 * Typical rate.
Over the three-year period, these loans cost between £231 and £613 more than Lombard Direct. But you don't get anything extra for your money, other than a larger interest bill!
There you have it: although interest rates have been falling since February 2001 (apart from this month's hike), the banks are still charging us too much to borrow. The only way we're going to change this is by voting with our feet and switching to better deals. So, what are you waiting for? Switch and save today!
Happy fifteenth birthday to Moneyfacts, which has been providing independent financial information (and making my working life easier) since 1988!
Find better Bank Accounts | Mortgages | Credit Cards | Personal Loans.
The author owns shares in HBOS and Lloyds TSB.