FOOL'S EYE VIEW
How Your Bank Cashes In On You!

By Cliff D'Arcy
March 7, 2006

This week, HSBC unveiled the largest pre-tax profit ever made by a British bank: a staggering £11.5 billion last year.

To put this figure into context, it's enough to give £460 to each of the UK's 25 million households. Wow, that's serious money! To be fair, HSBC is a global banking giant, hence, it made less than a fifth of this sum here in the UK. What's more, when it comes to products and customer service, I reckon HSBC is miles ahead of the other big British banks.

Nevertheless, the UK's five biggest banks made sky-high profits in 2005, as the following table shows (entries sorted by pre-tax profit):

Bank	Pre-tax profit (£bn)
HSBC	11.7
Royal Bank of Scotland	7.9
Barclays	5.3
HBOS	4.8
Lloyds TSB	3.8
Total	33.5

As a shareholder in HBOS and Lloyds TSB, I benefit from these record profits through higher dividends (the income paid to shareholders, usually twice-yearly). However, as I explained in Your Laziness Makes Me Rich, if we all shopped around more wisely for financial products, we'd save thousands of pounds every year -- and banking profits would tumble!

To show you just what I mean, let's take a look at some of the awful accounts and pathetic products that the Big Five banks offer in these five key areas, and compare them to the Best Buys in each category:

BANK ACCOUNTS

Paying £1,000 a month into a Best Buy bank account can earn you a credit interest rate of around 5%. Table-topping accounts in this field include the Coventry BS First account (5.10% AER/4.98% pa) and the Alliance & Leicester Premier Direct account (5.00% AER/4.89% pa). Now let's take a look at some of the flops:

• Barclays: several of its most widely held current accounts pay annual interest of 0.1% a year, or a fiftieth of what you'd earn with our two Best Buys.
• HBOS: pay in less than £1,000 a month into a Bank of Scotland Current account and you'll earn a mere 0.1% a year before tax.
• HSBC: again, the majority of HSBC's current accounts pay 0.1% a year.
• Lloyds TSB: 0.1% offenders include its Classic, Gold Service, Graduate, Platinum and Select bank accounts.
• Royal Bank of Scotland: NatWest's Current Plus, Graduate, Step and Student accounts all join the 0.1% club.

As for overdraft interest, the interest rates and charges levied by the Big Five are frankly brutal, as I warned in Ripped Off While In The Red!

Bag a blinding bank account in our Banking centre!

CREDIT CARDS

Borrowing on credit cards is almost always a bad idea, as the typical interest rate charged on purchases is a hefty 15.6% a year. Smart card players should transfer their debts to a 0% credit card, which allows them to avoid interest for up to a year. Alternatively, cardholders who always pay off their bills in full can earn as they spend with a Best Buy cashback credit card. Now let's review what the Big Five are charging their existing customers:

• Barclays: a Barclaycard Platinum card charges a typical rate of 17.9% APR, while rates on other popular Barclaycards vary from 16.9% to 27.9% typical APR.
• HBOS: Halifax has some good products in this category, although its affinity and charity cards weigh in around 16.9% typical APR.
• HSBC: its Bank Credit Card charges 13.9% APR, and the Premier card charges a respectable 9.9% APR.
• Lloyds TSB: its plastic rates vary from 11.6% to 19.4% APR, so no obvious bargains here.
• Royal Bank of Scotland: NatWest and RBS Classic, Gold and Platinum cards all charge 16.9% APR.

Find your perfect plastic in our Credit card centre!

MORTGAGES

When it comes to standard variable rate (SVR) mortgages (the rate paid by borrowers who aren't on a special or reduced rate) the general rule is: the bigger the lender, the higher the rate! Let's compare the Big Five's SVRs:

HSBC wins top honours in this category, because its SVR of 5.50% a year is at least a full percentage point lower than those charged by Barclays/Woolwich, Lloyds TSB/C&G, Halifax/Bank of Scotland (all 6.50%) and Royal Bank of Scotland/NatWest (6.59%). To be blunt, with the honourable exception of HSBC, all of these banks are taking their borrowers for a ride!

If you aren't tied in to an existing home loan, or can pay a reasonable redemption penalty in order to move, my advice would be to enlist the help of a reputable no-fee mortgage broker to do the work for you, such as Fool Partner London & Country Mortgages. It's infinitely easier than trying to sift through 8,500 different mortgages on your own!

Find a happy home loan in our Mortgage centre!

PERSONAL LOANS

Let's say that you want to borrow £5,000 over three years, and don't want rip-off payment protection insurance (point four of this article explains why you should steer clear of PPI). According to the Moneyfacts database, you would repay a total of £5,424.48 with Best Buy provider Moneyback Bank (5.5% typical APR). Cahoot and Direct Line would charge slightly more: £5,432.04 (5.6% typical APR). Let's compare these to the Big Five's loan offers (data supplied by Moneyfacts):

• Barclays: a Barclayloan Plus would set you back £5,628.96 at 7.7% typical APR.
• HBOS: a Halifax Online Personal Loan would come to £5,798.52 at 9.2% typical APR.
• HSBC: HSBC does badly in this category, with a total amount repayable (TAR) of £6,072.48 at 13.9% typical APR.
• Lloyds TSB: the TAR for its Direct Personal Loan is £5,686.92 at 8.9% typical APR.
• Royal Bank of Scotland: the TAR for a NatWest Personal Loan would be £5,763.96 at 9.9% typical APR.

So, popping into your local bank branch instead of applying online could mean paying between £204 and £648 more in extra interest over three years. Ouch!

Pick the perfect loan in our Personal loan centre!

SAVINGS ACCOUNTS

With the Bank of England's base rate currently standing at 4.5% a year, your goal as a saver is to earn annual interest of, say, 5%+ on your nest egg, emergency fund or rainy-day cash. A quick search of Moneyfacts reveals just seven no-notice accounts which pay 5%+ on a balance of £100. Another account in this category is the ICICI HiSAVE account, which pays a whopping 5.15% AER on £1+.

Now let's look at some of the awful interest rates that the big banks pay to their savers (on a balance of £100):

• Barclays: its truly awful accounts include Instant Savings (0.15% a year before tax) and Prime (0.1%), plus several other accounts paying under 1% a year gross.
• HBOS: sub-standard Halifax accounts include Instant Saver (0.65%), Saver Reward (0.65%), 60-Day Gold (0.70%), Liquid Gold (0.65%), Matured Funds Account (0.35%).
• HSBC: HSBC pays reasonable interest rates on most of its savings accounts, with the lowest rate being 1.25% a year on its Instant Access and Deposit accounts.
• Lloyds TSB: offers countless grim accounts, including 90 Day Notice, Exclusive Saver, Flexible Savings, Instant Gold, Online Saver, Moneyplan, Reward Savings and Service accounts (all 0.1%), earning Lloyds TSB no points in this category!
• Royal Bank of Scotland: dire NatWest accounts include 90 Day Bonus Reserve, Advantage Reserve, Diamond Reserve and Reward Reserve.

Ditch your awful accounts -- visit our Savings centre today!

Based on the above data, I think we can safely say that one reason why the Big Five banks continue to rack up record profits is because each offers a wide selection of very poor products indeed. So, what are you going to do: be a sufferer or a switcher? Come on; get your money working harder today!

More: The Fool can find you better bank accounts, credit cards, mortgages, personal loans and savings accounts!