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Discussion about free banking.

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mralexn

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Mods note - separated from this thread.

Coming back to the cashless society that keeps on being talked about. I'm more for freedom of choice. After all, the easier you make it for people to buy things the more they will buy.

The problem I see with being 100% cashless is as follows:-

1. What is to stop banks from charging say 10% on all transactions. Don't like it? Oh well. Take Paypal and Ebay as an example. Want to send some money to your child as a gift, oh, sorry 10% of that goes to the bank. You get the idea.

2. Let's say that the payment processor is hacked or for some reason isn't working, seems a very quick way to cause chaos.
 
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Bletchleyite

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1. What is to stop banks from charging say 10% on all transactions. Don't like it? Oh well. Take Paypal and Ebay as an example. Want to send some money to your child as a gift, oh, sorry 10% of that goes to the bank. You get the idea.

Why should one not pay for financial services? I think we have got in a very strange position with banks, with them effectively being funded by "fining" people for overdraft misuse.
 

py_megapixel

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Why should one not pay for financial services? I think we have got in a very strange position with banks, with them effectively being funded by "fining" people for overdraft misuse.
In Germany, free bank accounts are rather rare. Last time I was there I saw an advert from Kommerzbank introducing them as a new concept.
However I'd prefer a fixed fee per transaction. If you want to send someone cash in the post it costs one stamp, no matter if it's £5 or £500. I would support legislation capping the maximum fees for transactions.
 

mralexn

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Because banks "Borrow" your money, and give you 0.01% but when you want to "Borrow" money from the bank it's 19.9% if not more. That's how they make their money.
 

DelayRepay

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Coming back to the cashless society that keeps on being talked about. I'm more for freedom of choice. After all, the easier you make it for people to buy things the more they will buy.

The problem I see with being 100% cashless is as follows:-

1. What is to stop banks from charging say 10% on all transactions. Don't like it? Oh well. Take Paypal and Ebay as an example. Want to send some money to your child as a gift, oh, sorry 10% of that goes to the bank. You get the idea.
Banks already charge businesses for depositing cash. Small businesses can probably avoid this by recycling some of the cash to pay suppliers, or pay wages, but for large businesses I think it often works out cheaper to accept cards given this avoids the need for a cash office, people to count and bank the cash, reduced insurance premiums etc. I think regulators (both Financial Services and Competition and Markets) will prevent excessive charging.

2. Let's say that the payment processor is hacked or for some reason isn't working, seems a very quick way to cause chaos.
We probably already live with this risk, to be fair, with the processors that manage the Faster Payments scheme, the CHAPS scheme, and so on. There will always have to be other options and contingencies. This topic is very much on the radar of the FCA/Bank of England at the moment.

Because banks "Borrow" your money, and give you 0.01% but when you want to "Borrow" money from the bank it's 19.9% if not more. That's how they make their money.
Unfortunately, it's really not that simple. Most current accounts are loss-leaders - the return generated by the balances comes nowhere near covering the costs of the supporting infrastructure, especially 'traditional' banks with branches, call centres, ATM networks etc. We might need a new thread to talk about this though!
 
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Coming back to the cashless society that keeps on being talked about. I'm more for freedom of choice. After all, the easier you make it for people to buy things the more they will buy.

The problem I see with being 100% cashless is as follows:-

1. What is to stop banks from charging say 10% on all transactions. Don't like it? Oh well. Take Paypal and Ebay as an example. Want to send some money to your child as a gift, oh, sorry 10% of that goes to the bank. You get the idea.

2. Let's say that the payment processor is hacked or for some reason isn't working, seems a very quick way to cause chaos.

Charges can be restricted by law (eg you can't charge the customer and additional fee for using a card anymore)

On Paypal personal transactions (eg gifts) do not attract fees. I think currency conversion still charged for though
 

najaB

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Why should one not pay for financial services? I think we have got in a very strange position with banks, with them effectively being funded by "fining" people for overdraft misuse.
Because having a bank account has increasingly been (and even more so in a cashless society) not something that you choose to do, rather you're forced into it. Charging for basic banking services is, in effect, a tax on the poorest in society. I have no problem with charging for value-add though.
 

Bletchleyite

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Because having a bank account has increasingly been (and even more so in a cashless society) not something that you choose to do, rather you're forced into it. Charging for basic banking services is, in effect, a tax on the poorest in society. I have no problem with charging for value-add though.

Do you object to profits being made on the sale of food items?
 

JamesT

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Because having a bank account has increasingly been (and even more so in a cashless society) not something that you choose to do, rather you're forced into it. Charging for basic banking services is, in effect, a tax on the poorest in society. I have no problem with charging for value-add though.

That's essentially the concept behind the Basic Bank Account isn't it? Provides the minimal set of services you need with no charges and available to everyone regardless of credit history?
 

najaB

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Do you object to profits being made on the sale of food items?
No. But that's why they are zero rated for VAT.
That's essentially the concept behind the Basic Bank Account isn't it? Provides the minimal set of services you need with no charges and available to everyone regardless of credit history?
Yes. But @Bletchleyite seems to be saying that even Basic Bank Accounts are a luxury that the banks, in their largesse, are spoiling us with.
 

Bletchleyite

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No. But that's why they are zero rated for VAT.

So bank account fees could be zero-rated for basic accounts.

Yes. But @Bletchleyite seems to be saying that even Basic Bank Accounts are a luxury that the banks, in their largesse, are spoiling us with.

Or if a subsidised system is desirable, it should come from taxation. Overall, paying a small monthly subscription for your current account is fairer and less regressive than whacking people for disproportionate fees if they go into their overdraft, as it's poorer people who get hit with those fees more often.
 

Mojo

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I'm not quite sure why anyone would be complaining about something that's free?

Despite numerous complaints, the banks usually offer a very high standard of customer service (branch service excepted at the current time).

Many fee-free bank accounts even offer rewards to customers (usually higher-income ones to be fair) for using their services, such as free cinema tickets or travel insurance. I also remember opening various bank accounts to get freebies such as plastic money boxes and activity packs.
 

Bletchleyite

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What's unfair about it? Implement a charge for everyone to cover for other people's mistakes.

The charges for mistakes exceed (or did exceed) any reasonable covering of the cost plus profit margin. The right way to deal with a debit beyond agreed overdraft is to decline it, not allow it and charge a hefty fee.

Would you support a Penalty Fare (for honest mistakes, remember) of minimum £200 in order for it to fund fare reductions?
 

jfollows

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Banks such as NatWest seem to charge something like 39.4% for overdrafts, they're quite keen on hiding the information also, I can't find it on a quick search.
 

najaB

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Overall, paying a small monthly subscription for your current account is fairer and less regressive than whacking people for disproportionate fees if they go into their overdraft, as it's poorer people who get hit with those fees more often.
Basic bank accounts normally don't allow overdrafts.
 

Mojo

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The charges for mistakes exceed (or did exceed) any reasonable covering of the cost plus profit margin. The right way to deal with a debit beyond agreed overdraft is to decline it, not allow it and charge a hefty fee.
In reality, if it is a one-off or irregular mistake, banks will typically cancel any fees charged. If you also don't want to exceed your overdraft, then call the bank and ask for it to be stopped. I have three current accounts at different banks and this option has been set for me on all three.
 

Bletchleyite

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In reality, if it is a one-off or irregular mistake, banks will typically cancel any fees charged. If you also don't want to exceed your overdraft, then call the bank and ask for it to be stopped. I have three current accounts at different banks and this option has been set for me on all three.

That should be the default. However, it's not, and that provides a nice big income stream for banks from the unwitting.

Much fairer that everyone pays a subscription for their service and fees are proportionate to the cost of the service. There are ways of making it more progressive, e.g. by offering premium services for premium markets as part of that subscription (i.e. bundled accounts).
 

JamesT

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Banks such as NatWest seem to charge something like 39.4% for overdrafts, they're quite keen on hiding the information also, I can't find it on a quick search.

In April the banks were banned from having different charges for authorised and unauthorised overdrafts. There was also a limit of 40% placed on the interest rate, so everyone now charges 39.9%.
 

jfollows

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I spent many years paying for a "premium" bank account - from about 1986 until 2018 I guess. In the end I was paying around £30/month. Easy money for the banks perhaps, but over time the price inevitably increased and the benefits reduced, so such things as having travel insurance for US trips without having to disclose existing health conditions vanished.

I now pay £2/month, but I get more than £2 back each month through my credit card use. So, at least compared to before, I now get paid by my bank for the same use. To be fair, the benefits I used to have I no longer needed, and when I did have them I used them, such as (twice) getting air fares reimbursed because I had to cancel.

At least the new bank overdraft fees no longer hit you with a large one-off fee for a one-off tiny overdraft. For some people this will be better than the old system.

But, as has already been said, people with money can charge those without money a lot for loans. But the same banks pay almost nothing in interest to people who save with them. As has also been said, some of the money comes from people who don't read the rules, or don't keep up with their pennies, or make a minor mistake of some sort.

I find the customer service of banks annoying - I ended up having to have three separate conversations to get a £6 charge refunded, each time I was promised it would be but wasn't. Even if my time and effort was free I will have cost them a lot more than £6 to process their mistake.
 

Starmill

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This thread is a little meaningless without a worked example explaining the charges in question that Bletchleyite is objecting to.

I'm perfectly prepared to consider there may sometimes be unfair charges made, but I'd like to see them clearly.

I was recently charged a £1.09 fee by HSBC for using my credit card to book with Premier Inn - in Euros. I forgot that they'd charge me in the local currency, as I'm so used to using that card on their site to book in GBP. A momentary lapse. I let it go. It's worth nothing that the last time I got in touch with HSBC customer services they were able to solve my problem very quickly and to my satisfaction.
 
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jfollows

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My "unfair charge" was provoked by a mistake of mine which caused the bank to lock my savings account, so I was unable to make the intended transfer to my current account to avoid going overdrawn.

Despite my morning call to bring this to their attention, I was told that it would take 24 hours before my savings account would "unlock", at which time I could transfer the money, but I would not be charged for going overdrawn.

Despite this "unlock" being true, I was charged for going overdrawn for one day, which was ludicrously expensive for what it was. It took an additional two calls to get the money refunded.

Like Starmill, I have made other mistakes which I just lived with. In my specific case here I wasn't prepared to put up with the bank's inability to allow me access to my savings for a day, despite the original error being mine.

But I'm sure there are a lot of similar cases in which people live with the charges rather than bother trying to get them reversed. Another good money earner for the banks, then.
 

Baxenden Bank

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Bank charges? Haven't paid any since 1990.

Long live the 'free' current account!

If my free current account is dependent upon the disorganised and feckless, would they please be so kind as to continue with their (bad) habits.

I never understood the point of the various premium accounts I have been 'offered the opportunity to upgrade to' over the years in return for a monthly fee - they never offered anything I was remotely interested in having. Some of them were clearly for people wanting status, similar to offering a premium credit card with a fancy name, but which has exactly the same functions as a basic credit card.
 

Journeyman

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I once had a premium bank account with NatWest because I was told I'd get preferential rates on a loan with it. Had the packaged account for about a year. I then found out this constituted mis-selling. Initially got offered half the fees I'd paid back again, but I refused and asked for all of it back. They crumbled immediately. Also had PPI on the loan, and got that back as well.

More recently I've had a Santander 123 account. When I first opened it, it was worth the fiver a month because I earned far more than that in cashback on my bills, and the interest rate was great. It's now useless and not even remotely worth the money, so I'm planning to move to a free account elsewhere. There's some switching bonuses out there at the moment, so it's a good time to do it.
 

crablab

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Basic bank accounts normally don't allow overdrafts.
They cannot, to be a basic bank account.

If my free current account is dependent upon the disorganised and feckless, would they please be so kind as to continue with their (bad) habits.
In the FCA thematic review of overdraft products, they noted that (I think these figures are correct from memory) 95% of overdraft fees were paid by 5% of customers.

Those are not "disorganised" and "feckless" people; they are people in financial difficulties being charged exploitative fees (so they are in a revolving door of credit, a catch 22) which subsidise the product for others.

As referred to above, this resulted in further regulation of overdraft products.

Bank accounts are not free to run. It costs a high street bank between £150-200 to service your account each year (yes, really that much). Some services are deliberately loss leading (eg. student overdrafts) to lock in customers for life.

Would anyone like to take a guess at how much a £10 cash withdrawal that is "free" for the customer costs the bank?
 

Tetchytyke

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The FCA insisted on a fixed interest rate because banks were increasingly charging a fixed fee for overdraft usage, even authorised usage. The fixed fee was regardless of how much overdraft you used. For small amounts for a few days the APR could be well into six figures, because of how the APR is calculated. It was often cheaper to use Wonga than even an authorised overdraft but because of the fee structure this wasn't obvious.

I think the FCA are correct to insist on a transparent interest rate. All other debt products have to show an APR. It allows people to make informed decisions about what debt product to use.

As for "free banking", my account is always in credit but I don't receive interest. The bank use that money to fund lending, where they charge interest. The account is certainly not "free".

Would anyone like to take a guess at how much a £10 cash withdrawal that is "free" for the customer costs the bank?

The Link interchange fee is 25.9p.
 

cactustwirly

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Don't forget the banks also make money by charging retailers for card usage.
 

najaB

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Those are not "disorganised" and "feckless" people; they are people in financial difficulties being charged exploitative fees (so they are in a revolving door of credit, a catch 22) which subsidise the product for others.
For some that will be the case, for others it is a lack of financial education meaning that they just don't realise how much they are paying in interest - often times unnecessarily. I know more than one person who could clear their credit commitments fairly easily but consistently pay the minimum amount since that's all they 'need' to pay.
 
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