Surface Ripples

Bank Charges - Still Up For Grabs

Like any other industry, banking services are a chargeable product. Recently, the Office of Fair Trading gave up on its attempt to halt what were seen as "unfair" overdraft charges.

The outcry here is because the charges are seen as often exceeding the amounts by which people exceed their authorised overdraft limit - sometimes (as in the case of student Julia Turner) for exceeding their limit by the princely sum of 1p. Why, we ask, should we have to pay nearly GBP50 of charges for going GBP10 over our limit? The objection seems to be not so much to paying a charge, as to the "fairness" of the charge.

Therein lies the rub. What is "fair" when it comes to charges for financial services? We can't see or touch them, and many would say that they see little benefit in them. The charging mechanism grew from the 80s when banks started to compete for deposits and paying interest on current accounts where previously current and even some savings accounts earned no interest, but the funds were lent out at a premium in the days of the "3-6-3" rule (borrow at 3%, lend at 6% and be on the golf course by 3.00pm).

As competition and the number of "banks" increased, so "traditional" revenue streams eroded. In addition, the cost of bank premises were going up, as well as the costs of staff, technology and regulation. In the face of declining lending margins and increasing costs, something had to give. In this case, it was charges for services.

Charges are here to stay, but many people don't realise what they get for them. At the least, you have your money looked after, a monthly statement, an ATM card plus several thousand ATMs in the UK and overseas to get cash from and someone to advise you when needed. In return, most bank accounts maintain a very low "average balance" (the money that's left over after all your deductions have been made for utilities, Council Tax, etc) which does not, by itself, cover the bank's costs of running your account.

The whole system of charges in any bank should be transparent (you should be able to request a copy of your bank's tariff of charges which sets out the amounts and conditions under which they are charged). If you don't like them, look for another bank or type of account (as I have done in the past). Remember, you DON'T have to do business on terms which to you seem unfair. There are accounts which don't allow you to go overdrawn, so if you want to avoid "unfair" overdraft charges, have one of those, but be preapred for other limitations.

It appears that the message is slowly getting through to the banks, who apparently are reducing their charges. However, they will probably find other means of recouping them.

Labels: Regulation

posted by William Martin @ 19:41