FOOL'S EYE VIEW
Big Banks Mean Bad Deals!

By Cliff D'Arcy
October 21, 2004

In the last couple of years, some very powerful groups have condemned sharp practices at the UK's biggest banks.

MPs, the Competition Commission and consumer groups have lined up to attack the banks for making excessive profits from small businesses, mortgages, credit cards and so on. In fact, one Parliamentary report warned that the bigger your bank is, the higher the profits it makes from you.

So, is this really true? Do the big banks really churn out the worst products? I decided to put this theory to the test.

The UK's biggest stock market-listed banks are:

Britain's Biggest Banks
Bank	Market capitalisation* (£ billions)
HSBC	99
RBS (Royal Bank of Scotland and NatWest)	50
Barclays	35
HBOS (Halifax and Bank of Scotland)	29
Lloyds TSB	24
Total	237

* The combined value of all the shares in a listed company.

So, the UK's five biggest banks are worth a combined £237 billion. That's over a sixth (17%) of the entire UK stock market, which is worth £1,380 billion. So these are BIG businesses, employing huge workforces, making gigantic profits and paying lots of tax. At the other end of the scale is the UK's smallest listed bank, Egg, worth a mere £700 million.

Egg may be a tiddler compared to these giants, employing just 2,200 people. However, as the UK's leading online bank, it has much lower overheads than the high-street giants do. Hence, in theory, Egg should be able to undercut the Goliaths and provide better value for its customers. Let's see if this is actually the case:

Mortgages

Let's compare each bank's standard variable rate (SVR), which is the bog-standard rate charged to all borrowers who don't have a special deal:

Egg v Big Five
Bank	SVR (%)	Annual interest* (£)	Difference from Egg deal (£)
Egg	5.74	5,740	-
HSBC	5.75	5,750	10
HBOS	6.75	6,750	1,010
Lloyds TSB	6.75	6,750	1,010
Barclays	6.79	6,790	1,050
RBS/NatWest	6.79	6,790	1,050

* For an interest-only loan of £100,000.

So, it's Round One to Egg and HSBC, but loud raspberries to the other big banks, which charge over a grand a year more for the same loan! Learn more in The Best Value Mortgage Lenders.

Find a happier home loan in our Mortgage centre.

Credit cards

Although most of these banks offer 0% deals to new cardholders, we'll stick to comparing each bank's standard interest rate for purchases (not balance transfers or cash withdrawals):

Egg v Big Five
Bank	Annual Percentage Rate for purchases (APR%)
Egg	14.9
HBOS (Halifax Flat Rate)	14.9
HSBC (Classic Plus)	15.9
Lloyds TSB (Classic)	17.9
RBS (NatWest Credit Card)	18.4
Barclays (Classic Barclaycard)	15.2 to 26.3

So, Egg and Halifax share joint honours here, with HSBC a respectable third. However, new Egg customers get 0% on balance transfers until 1 June 2005, plus 0% on new purchases until 1 April 2005, which makes its card a Best Buy, according to Moneyfacts magazine.

Pick up a cracking deal in our Credit Card centre.

Savings

Let's check the highest rate that each bank offers for a no-notice account containing, say, £500:

Egg v Big Five
Bank	Annual Equivalent Rate (AER%)
Egg (Internet Savings)	5.12
Lloyds TSB (Online Saver)	5.00
HBOS (Halifax Web Saver)	4.90
Barclays (E-savings)	4.33
RBS (NatWest e-Savings)	4.25
HSBC (Premier Savings)	3.00

So, once again, Egg takes the gold medal, with Lloyds TSB and Halifax taking silver and bronze in a photo-finish, and HSBC claiming the wooden spoon. You can learn more about becoming a smarter saver in Supersize Your Savings!.

Make your money work harder in our Savings centre.

Personal loans

Let's compare the cost of an unsecured personal loan of, say, £5,000 over three years, without rip-off personal loan protection insurance, to new customers:

Egg v Big Five
Bank	Annual Percentage Rate (APR%)	Total Amount Repayable (£)	Difference from Egg deal (£)
Egg	6.9	5,536	-
Lloyds TSB	8.9	5,691	155
RBS (NatWest)	8.9	5,697	162
Barclays	9.9	5,775	240
HBOS (Halifax)	9.9	5,859	323
HSBC	13.9	6,072	537

So, Egg takes top honours once again, with the other five banks charging between £155 (Lloyds TSB) and £537 (HSBC) more over three years.

So, with Egg coming first in all four categories, we have a decent amount of evidence to support our claim that the big banks are taking their customers for a ride. However, I think HSBC deserves a pat on the back for being the best of the big banks. Despite coming bottom for savings and personal loans, it wins my vote because it gives its mortgage customers a great rate. And, for most people, their mortgage is their biggest financial commitment.

Finally, this exercise clearly shows that you'd be crazy to place all your business with a single high-street bank. None of them topped any of our tables, nor did any finish consistently well, with the silvers, bronzes and wooden spoons shared out fairly evenly. So, if you think that your bank is giving you a raw deal, it's time to vote with your feet and switch. You could save £1,500 a year or more!

More: Find a better mortgage, credit card, savings account or personal loan | Credit Card Bosses Take A Beating!