BANKS

GIVE US BACK OUR MONEY The average bank can cost you £12,000 more than the best over a working life

n a sane world, if you consistently irritated a and charges you weren’t expecting. Here we explain Ithird of your customers, you’d quickly go out of what those charges are – and then how they bolster business. Unhappily, that’s not the world in which them with other unreasonable practices. we live – a new Which? survey shows that 35 per cent of people are annoyed by their bank, yet the Overdraft charges industry made more than £35 billion last year. Banks already make £3 billion a year from charges Customers are hit with exorbitant charges for for unauthorised overdrafts, as we revealed services that cost banks next to nothing, banks last September, and these charges are on the rise. capitalise on anxiety about financial matters, Lloyds TSB is the latest to increase them, going and poor service is widespread. from £25 to £30. It charges £30 if you go over Much of the problem arises from the fact that your limit by £10 (it waives the first charge in any most of us bank with one of just five big companies; 12-month period). Then there’s £30 each day you they largely control the pace at which the industry go over by a further £10 or more, up to £90 a moves. But you’ll find the same behaviour spread month. If you don’t have enough in your account throughout the financial sector. to pay a standing order or direct debit, it adds a further £35. And, on top of all that, it charges 29.8 WATCH OUT FOR BIG CHARGES percent interest on the unauthorised borrowing. It costs banks a lot of money to get hold of a new These levels of charge are typical of the industry. customer. For example, Lloyds TSB gives £50 to Even Nationwide, generally one of the fairer- OUR RESEARCH new customers to tempt them into the fold; Alliance minded companies, makes them. Its boss, Philip In February 2005, & Leicester and both give £25. And Williamson, told us: ‘Like other banks, we use these we conducted a many of the banks use loss leaders, such as charges to discourage delinquent activity.’ In other face-to-face survey attractive interest rates, to pull people in. words, they use the charges to encourage people to of 932 people in the Having done that, they need to make their run their accounts without going overdrawn. investment back as quickly as possible. One way is There’s an important point between the lines UK aged 15 or over.

by making easy money on big overdraft charges there: these charges are merely punitive – they 21, JOHN STUDIO ALAMY, PHOTOGRAPHY TRENHOLM

10 JULY 2005 WHICH? BANKS

The best and worst practices

We compared more than 500 products and charges while researching this report, many of which seem designed to catch customers out. But we also came across one really good practice that stands out as an example for the entire industry to follow.

MOST USELESS FINANCIAL PRODUCT No one needs identity- theft insurance. Several companies have launched their own policies recently, including Capital One, Barclaycard, Alliance & Leicester and The Royal . But once again our award goes to . don’t reflect the cost to the bank. When we asked MEANEST It charges more MOST POSITIVE Neil Berkett, a director at Lloyds TSB, to justify CHARGE than anyone else, £84 CHANGE them, all he could say was that ‘our fees are Alliance & Leicester a year – money that This award goes to comparable to those of our competitors’’. By that was first choice here: would be much better Lloyds TSB for being logic, Lloyds TSB can rip off customers more each the only bank to charge spent on a shredder the first bank to return year, as long as other banks rip them off more too. for moving your cash and protection the money it makes on to another Isa provider. software for your PC. slow transfers. Foreign charges But it withdrew the It has had a system in It’s a similar story when you use a bank card abroad: £25 fee last month. place to refund people’s charges don’t reflect costs to the bank. Instead, the lost interest since The maximum it costs a bank to process a foreign Meanest Charge award January last year. card transaction is 1.5 per cent of the sum involved. goes to Halifax. It HSBC recently But most add 2.75 per cent to each bill – at least charges £1.50 every followed suit, saying it 1.25 per cent pure profit for doing nothing. time you use your will return lost interest If you use a cash machine, they usually add a debit card abroad – in by the end of the year. further 1.5 to 2 per cent, with a minimum charge addition to the 2.75 The banking industry of £1.50 or £2. And that’s still not enough for some per cent it adds to all as a whole has agreed banks – the most recent trend is to add a flat fee foreign transactions. to speed up transfers – when you pay for something abroad with your debit Its subsidiary IF also but not until November card. Lloyds TSB is the latest to join in, charging charges £1.50 – but 2007. Meanwhile, we £1 for each use. NatWest already charges 75p a adds a fractionally less want all banks to follow transaction. Halifax, winner of our Meanest Charge cruel 2.25 per cent. Lloyds TSB’s example. award, and charge a whopping £1.50 – put a £10 meal on a Halifax debit card, and you’ll pay a total of 17.75 per cent extra in charges. insurance (PPI). It’s expensive, gives limited If you use your debit card abroad often, set up a cover and, for lots of people, it’s worthless. Nationwide FlexAccount. Alone among the major The idea is that PPI covers your loan payments banks and building societies, it doesn’t make any if you’re unable to work because of sickness or charges when you use your card overseas. unemployment. However, if you’re on a contract or self-employed or you have a pre-existing illness, BE CAREFUL WHAT YOU BUY it probably won’t pay out. Of course, we don’t all go overdrawn and we don’t In the past, we’ve found widespread mis-selling all get short of cash when we’re on holiday. So the of PPI with personal loans over the phone, and banks need other ways to recoup the money they now we’ve discovered that the banks are using spend getting hold of each customer. worryingly similar practices on the internet. Banks in the UK are particularly good at selling We looked at the websites of 34 loan companies their customers new policies and accounts. In the and found ten that don’t ask you whether you want worst cases, people end up buying policies they to include PPI in your quote, but automatically add don’t need without even knowing it. it on. The culprits were The Co-operative Bank, A prime example of banks selling customers Direct Line, Egg, HSBC, Liverpool Victoria, Lloyds something they don’t need is payment protection TSB, Lombard Direct, Mint, and < WHICH? JULY 2005 11 BANKS

Smile. They’re hoping you’ll take out a loan without payment she had made to her . Worried realising that you’ll pay less by opting out. about incurring charges for missing a payment, and unable to get through on the phone, she rushed to More useless insurance town to discuss it with her branch. A new development in the field of policies people When she got there, she discovered that there don’t really need is identity-theft insurance. was no problem with the payment: ‘I was furious When Which? readerAdam Brown activated a that the bank had sent me a deliberately misleading new card with Alliance & Leicester, its adviser asked letter just to try to sell me something.’ whether he’d seen the news stories about fraud Yo rkshire Bank admitted that it was in the wrong on the new chip-and-Pin system. For just £29 but, in classic bank-speak, a spokesman said he a year, he could buy its identity-theft insurance. ‘would advise that the branch was simply trying Fortunately, Adam wasn’t that easily fooled: to draw attention to services which they thought ‘Now’s the time for them to make a quick buck,’ would be of interest in a proactive manner.’ he told us. ‘It all seems wrong to me.’ Identity-theft insurance doesn’t stop you from Confusing adverts becoming a victim of fraud or identity theft, and If people are anxious or confused about what’s you still have to do some work to sort it out if you’re happening, it’s easier to make money from them. a victim. It offers help and advice – which is also Few of us understand much about personal finance, so there’s no shortage of confusion. ‘Now’s the time for them to make a quick buck. For example, you might think that the slogan ‘a low rate that stays low’ means that the interest It all seems wrong to me’ rate will stay at a similar level. Not so. Capital One and The Co-op have both made this Adam Brown claim in their advertising. The Capital One card was launched in April 2004 with a rate of 5.9 per cent – available for free from the police and Citizens within six months the rate was 6.9 per cent. Advice – and reimburses the cost of postage, The Advertising Standards Authority says that phone calls, legal expenses or loss of earnings. because the rate was low compared with other The £25,000 or so of cover offered sounds like credit cards, this claim is OK. But it’s unclear a lot but it’s not for the money stolen: the bank whether the public understands the difference. is liable for that, not you. It simply covers your Both cards also claim to be ‘flat rate’. Flat rate is expenses, and it’s unlikely that you’d need to a new term – again, one that’s conveniently open to claim for anything like the amount covered. misinterpretation by potential customers. It doesn’t You don’t get much that you can’t do yourself – mean the rate will stay at its current level: it means even though the most expensive policy costs £84 you’re charged the same rate for all transactions. a year. That policy wins Halifax its second award, forthe Most Useless Financial Product. DON’T BE LOYAL TO ONE BANK We all encounter banks trying to sell us things BE WISE TO THE SPIN we don’t need or bamboozling us with financial Identity-theft insurance is a fairly inspired piece terminology. So it’s surprising that only one in of marketing – it cashes in on the wave of public 20 people have switched banks in the last two concern about identity theft. Profiting from anxiety years – doubly so when you hear the stories of or confusion is a strong point for many banks. people who’ve suffered from poor customer service. Michelle Smyth got in touch with us on just this To find out how banks treat loyal customers, we point. She was understandably concerned when asked you about your treatment at the hands of Yo rkshire Bank asked her to contact it about a banks. We were inundated with responses. For

How to avoid banks’ charges

Here are a few of the ways PROTECT YOUR OWN ID credit union. Credit unions you can avoid losing money Rather than buying are formed when people in Nationwide doesn’t to the banks. identity-theft insurance, a community – people who charge to use its avoid obvious passwords live in the same village, FlexAccount abroad GET A NATIONWIDE (such as your birthplace), say – save and borrow CARD FOR ABROAD check your credit file yearly, together. Credit unions can Nationwide is the only and shred old post. Go to charge a maximum of 12.7 with a leading bank to major bank or building www.cifas.org.uk for advice. per cent for borrowing and enable credit unions to offer society that has a card typically give 2 to 3 per cent basic bank accounts with which doesn’t charge if you JOIN A CREDIT UNION interest on savings. ATM facilities. Have a look use it abroad. If you travel Opt out of traditional The Association of British at www.abcul.org.uk to find a lot, set up a FlexAccount. banking altogether with a Credit Unions is negotiating your nearest union.

12 JULY 2005 WHICH? BANKS

example, Richard Gommo has banked with Lloyds TSB for 51 years but ended up £345 out of pocket ‘The industry is a virtual cartel’ after it simply lost the deeds to his house. Richard told us that he’d ‘experienced poor service and many irritations over the years’. ‘The UK banking nothing has changed customer service Juliet Tibbels had to battle with just industry is a virtual since his report. and not just profits.’ to geta new cheque book. She met with various cartel – a cartel He feels that Don thinks nothing frustrations; most worryingly, a cheque book was without the collusion,' competition still isn’t has happened because sent to the wrong address. ‘I was eight months says Don Cruickshank. working, and says the the status quo is in the pregnant at the time,’ says Juliet. ‘I could have Five years ago, big banks are making government’s interest: really done with my cheque book to pay for things he wrote a damning too much money. the more stagnant the when I was unable to leave the house.’ report on the industry ‘In any other industry is, the less Brenda Schofield wrote to Barclays to complain for the government. business,’ he told us, chance of a scandal. about poor service and was called by someone Now he’s hit out ‘the boards would be As a result, the big she assumed wanted to apologise. However, true to again, saying that concerned about banks still dominate: form, it was an adviser trying to sell her something: 'If competition was ‘My gripe with Barclays is its arrogant lack of working, we would concern for customers and its impersonal responses, have seen new except when it comes to selling its products.’ entrants, and less Banks are expert at profiting from customer efficient companies loyalty. But remember they want to keep you as a leaving the market.’ customer, so it pays to challenge them. Chris Rolfe Cruickshank: He’s calling for phoned Lloyds TSB to cancel his insurance because ‘We need a drastic action: ‘We he’d found a better deal elsewhere. Straight away, regulator need a regulator with it offered him the same cover as he had before for with proper proper powers to give half the price, plus £20 of Marks & Spencer powers’ competition and vouchers. But he was so annoyed that he refused transparency.’ the offer and he’s going to switch his current account to a different bank: ‘I didn’t accept the offer because I was so insulted that it had been charging me double for goodness knows how long.’ Big banks have unhappy customers ESCAPE TO A BETTER OFFER Switching current accounts isn’t difficult – you can Our annual survey shows big those same banks own other banks switch almost at the stroke of a pen, and 90 per differences in customer service that have some of the happiest cent of people who have switched say that they between the banks. customers – First Direct is owned found the process straightforward. Most interestingly, the banks with by HSBC, and Intelligent Finance is However, banks have ways of making other types the biggest market shares seem to owned by Halifax. So why can’t they of account more difficult to escape. For starters, care less about their customers. But get it right themselves?

100% SMALLER BANKS, BETTER SERVICE IF First Direct 80%

Nationwide Co-op 60%

SERVICE BIGGER BANKS, POORER SERVICE HSBC Barclays 40% Halifax NatWest Lloyds TSB ustomers very satisfied with their current account with their current very satisfied ustomers C 20% 5% 10% 15% 20% MARKET SHARE Share of current-account market

In March 2004, we sent questionnaires to 11,363 Which? members asking about their current-account providers; thanks to the 5,111 who responded. Market share is taken from a January 2004 Mintel report. PHOTOGRAPHY CORBIS PHOTOGRAPHY < WHICH? JULY 2005 13 BANKS

they make it tricky to tell which is the best rate: it’s Which? campaigns impossible to compare credit cards because interest is calculated in any one of 20 different ways. The other barrier to smart shoppers is charges for moving to better offers. For example, over the last year, mortgage lenders have increased redemption penalties by around £100. And a growing number of credit card companies have introduced charges for transferring balances. If you owe money on your card, they charge 2 per cent (up to a maximum of £50) to let you swap to a more generous card.

Nicer banks for smarter shoppers Even if you do switch to a better bank, you could still be a source of income for your old bank. Many have separate companies that offer better rates and service to the people who aren’t loyal enough to put up with high charges and poor treatment. HSBC was the first bank to offer a better version of itself when it launched First Direct in 1989. A three-year loan of £5,000 costs £173 less with First Direct than it does with HSBC. When we asked HSBC to justify the difference, it told us: ‘Because First Direct doesn’t have to support branches and all the staff that involves, it can do different things with pricing from HSBC.’ Whether or not that’s true (and not many people pop into their branch to discuss a loan while they’re repaying it), it doesn’t explain the difference in how Which? is always refund the lost interest had increased and customers are treated.We’ve found 83 per cent of campaigning to to customers until the most companies First Direct customers are happy with their bank, improve how banks new system is in place. charge the same. compared with just 45 per cent of HSBC customers. treat their customers. We’ll keep up the It’s a similar story with Abbey and its online Here are some of the pressure on the others. MIS-SOLD version, Cahoot. Abbey typically charges 17.3 per issues we’ve been INSURANCE cent for a £1,000 loan, Cahoot just 6.2 per cent; in tackling recently. CASH MACHINES The Financial Services our survey, 51 per cent ofAbbey current-account The Treasury Select Authority is looking customers are very satisfied with their service, ELECTRONIC Committee has at the sale of payment compared with 61 per cent of Cahoot customers. TRANSFERS agreed with a Which? protection insurance The banks have finally campaign to label cash (PPI). It made the HOW TO TURN THE BANKS AROUND caved in to pressure to machines more clearly. announcement after We can all do our bit to challenge the banks by speed up electronic Labels now have to Which? research moving our money to more generous companies transfers, two years say that the machine showed that financial with better customer service. But the main after we revealed how will (as opposed to companies sold PPI problem is with the industry, not consumers. they make around ‘may’) charge. And to people who could Critics point their fingers at two big problems – £30 million a year you’ll be told on screen never claim on it. the culture of putting shareholders before from the delays. as soon as you put customers and the lack of effective competition. Currently it takes your card in that BANKS IN between three and five there’ll be a charge – NORTHERN Putting customers first days to transfer money previously, the IRELAND The most infuriating thing about the banking between accounts; the machines didn’t tell In May, the Office of industry is its inability to see the opportunities banks have agreed to you until you were Fair Trading referred in treating consumers with more respect. There’s move to one day or nearing the end of the banks in a big market out there for a company that thinks less. However, the a transaction. to more imaginatively – not least among that 35 per changes won’t happen the Competition cent of people who feel annoyed by their banks. until the end of 2007. CREDIT-CARD Commission after Sadly, none of the banks is taking the initiative, Meanwhile, they’ll CHARGES we used our super- so Which? is embarking on a consultation with the still profit from money The Office of Fair complaint powers industry to make it happen. We’ll develop a new that’s not theirs and Trading is investigating to highlight the issue. code that encourages companies to put customers from ridiculously high credit-card charges The banks charge first. People will be able to see which firms treat fees of £20 to £25 for after we gave evidence their customers customers fairly – those that don’t care about same-day transfers. to the Treasury Select outrageous amounts – customers won’t be able to sign up to the code. Lloyds TSB and Committee. We even more than in There’s already a Banking Code which, in theory, HSBC have agreed to showed that charges the rest of the UK. ought to prevent a lot of the dodgy behaviour we’ve seen. But it isn’t based on general principles – it

14 JULY 2005 WHICH? BANKS

£12,000 wasted in a working lifetime MOREYour experiences INFO CURRENT If you shop around before you OVERDRAFT CHARGES CREDIT-CARD CHARGES ACCOUNTS choose a bank for an account or We found a £201 difference in Save £165 a year in a typical Last report loan, you’ll save a lot of money. overdraft charges for a typical scenario: £2,550 spent, all of September 2004 Take the typical set of scenario: a £250 authorised the bill repaid in three months, Next report scenarios we’ve shown below – overdraft and £50 a quarter of it in other months. November 2005 in total, the worst banks charge unauthorised overdraft three around £740 more a year than times a year, plus typical CASH ISA CREDIT CARDS the best ones. That’s £22,200 transaction charges. We found £55 a year between Last report over a working lifetime. the best and worst rates on December 2004 The big banks tend to cluster BANKING CHARGES a £3,000 mini cash Isa. around the average points, There’s a £30 difference in the Next report offering suspiciously similar cost of cancelling a cheque, LOANS December 2005 rates. But they could still cost fast-tracking a cheque to pay There’s an £867 difference you an extra £400 a year – in two days and paying the in interest on a three-year You can also find £12,000 over a working life. charge for a bounced cheque. £5,000 loan. lots more ratings and information at www.which.co.uk/ OVERDRAFT CHARGES creditcards and BEST £81 Smile www.which.co.uk/ currentaccounts. AVERAGE £204 WORST £282 The Co-operative Bank Correct at 18.5.05 Correct

BANKING CHARGES BEST £30 Cahoot Current Account AVERAGE £50 WORST £60 NatWest/RBS Plus

CREDIT-CARD CHARGES BEST £20 Capital One – No Hassle Platinum AVERAGE £48 WORST £185 HFC Bank – GM Platinum

CASH ISA BEST £162 Abbey AVERAGE £140 WORST £107 Newcastle Building Society

LOANS BEST £452 Barclaycard AVERAGE £643 WORST £1,319 Barclays

SAME COMPANY, DIFFERENT RATES A £5,000 loan from Barclays from smarter shoppers. Barclaycard’s costs £867 more than virtually Ian Barber says the reason is that the same loan from Barclaycard. people expect to get a loan from their That’s typical of banks’ attitudes bank: ‘Far fewer people would be to customers: one rate for loyal accepted for a Barclaycard loan, customers, another to win business hence the difference in rates.’ < WHICH? JULY 2005 15 BANKS

looks just at particular practices. So when one trick is banned, the banks can just dream up another. says And even when the code catches up with practice, it’s not always for the better. For example, we Thirty-five per cent charges we think it pointed out in September that Barclays and NAB of people are annoyed should look at. (which owns and ) by their bank. Banks can avoid the weren’t following the guideline to give customers That’s not very investigations that notice of unauthorised-overdraft charges. The surprising when you await by starting to banks and building societies that subscribe to the realise that the banks treat customers fairly code solved the problem by rewriting the guideline dish out charges that now. We’re drawing to apply to authorised overdrafts only. don’t remotely reflect up new guidelines, That’s why we want the code to include a the costs to them. working with the principle of fairness, so that banks can’t get off on a Add the profits from industry – you can help technicality when they break the spirit of the code. anxiety, confusion and by telling us about your customer loyalty, and experiences at www. Fighting the dominance of the big banks there’s a clear problem. which.co.uk/moneytalk. Phil Evans, Which?’s expert on competition, has But there are also And, of course, you been campaigning in the banking sector for nine clear solutions. can challenge the big years. ‘The industry doesn’t work for consumers,’ If the Office of Fair banks by moving to a he says. ‘It’s difficult for people to choose the right Tra d ing’s current bank with better service product because of the confusing array of charges investigation concludes and better rates. Find and complex pricing structures.’ that credit card charges all the up-to-date best The problem is compounded by the size of the are unfair, there are rates on www.which. biggest companies – just five companies dominate plenty of similar bank co.uk/switch. the sector, and they tend to price their offers similarly. They are the Halifax/Bank of Scotland Group (HBOS), Barclays, HSBC, Lloyds TSB and The Group (which includes NatWest). Including their subsidiaries, they have 80 per cent of the current accounts market. When we found that the dominance of four big banks in Northern Ireland stopped consumers getting a good deal, we complained to the Office of Fair Trading. It agreed with us and now the Competition Commission is investigating. The big UK banks aren’t at that stage yet but there are clear signs that they’re ripping people Have your off. They need to start treating customers much say at the better than they currently do. We’re going to do Moneytalk website everything we can to make that happen.

Free access to your cash – for how long?

Cash machines that But there are strong signs branches. HSBC sold 800 areas. It isn’t even prepared charge when you withdraw that we should worry about free machines last year; to extend the limited pilot money are growing at a how long we’ll have free NAB, which owns scheme that ended in 2003. phenomenal rate. access to our cash. Clydesdale Bank and Derek French from Over the last couple of Banks are selling off free Yorkshire Bank, is closing Campaign for Community years, 20,000 convenience machines and closing 100 branches. Banking shares our machines have been Peter Brown from NAB frustration: ‘The industry installed (there are told us: ‘I’m not aware of has turned its back on a currently around 30,000 any place that will be left profitable solution through free machines in total). with just charging ATMs, sheer narrowmindedness.’ These so-called but I couldn’t be sure.’ If you have to pay for cash convenience cash machines It’s a particular threat to withdrawals because your charge around £1.50 every people who live in rural local branch has closed or time you withdraw cash. areas. Disappointingly, the nearest ATM has been If they’re supplementary the British Banking sold, we want to hear from to existing cash machines Association recently you. Write to Dept AW, PO and branches where we can Will free cash rejected the idea of banks Box 44, Hertford X SG14 withdraw money for free, machines sharing branches to retain 1SH or visit www.which. they are more convenient. become a rarity? free cash facilities in rural co.uk/moneytalk.

16 JULY 2005 WHICH?