--------------Main Menu

Economics - Banks

Cash MachineCustomers at Britain's high street banks are paying the most exorbitant charges in Europe. Those who accidentally go overdrawn face "punitive" charges often 10 times greater than those on the Continent, an investigation has revealed. Even an authorised overdraft often costs twice as much as elsewhere in Europe. A customer with a Lloyds TSB Classic account from the TSB range, who went overdrawn without permission by just £15 for 10 days, would face charges of more than £50. A customer at Deutsche Bank in Germany, Crédit Suisse in Switzerland or IMI-San Paolo in Italy would be charged less than 50p.

Banks such as Lloyds TSB and National Westminster not only charge higher interest rates for going into the red without permission, but also levy extra charges of up to £5 a day. Even customers who always stay in credit are often forced to pay for services - such as a banker's draft and stopping a cheque - which are frequently free in other countries. "It's outrageous that any bank can charge £5 a day for an overdraft," said Eddie Wetherill, of the Independent Banking Advisory Service. "These charges are the worst in Europe and they should be outlawed because they drive people deeper into debt. The high street banks make billions in profits, but seem to be inventing new fees all the time. For most, free banking is fast becoming a myth."

Last year the four main high street banks reported pre-tax profits of £8.87 billion - up £1.75 billion in a year. In August, despite widespread job shedding and branch closures, the four reported combined half-year profits of nearly £5 billion. They are proving particularly profitable in retail banking, where they rely on the accounts of ordinary British consumers. The average return on equity in 1998 was 21% for British banks, unheard of in the rest of Europe. Warburg Dillon Read, the merchant bank, estimates that the average post-tax return on equity for French banks in the same year was 10% and 9% for German banks.

The survey reveals that British customers pay huge charges for going overdrawn compared with those on the Continent. The base rate in the 11 countries using the euro is 2.5%, against the Bank of England's 5.25%, but this is not enough to explain the huge difference in borrowing charges. A current account customer at National Westminster pays an effective annual interest of 33.8% for an unauthorised overdraft plus a £3.50 daily charge. IMI-San Paolo, Italy's biggest bank, charges only 12.5% annual interest plus a fixed fee of 0.75% of the maximum amount borrowed. A customer with an authorised overdraft at National Westminster pays annual interest of 17.8%, far higher than his Italian counterpart at IMI-San Paolo, who pays 7.5%. Both banks offer free banking to customers in credit.

The number of cash machines in the UK charging customers to withdraw money has grown almost 13-fold in the last three years. While three years ago there were only 872 cash machines which charged customers to take money out in the UK - that figure has since mushroomed to 11,000. According to research by Sainsbury's Bank, 34 million withdrawals will be carried out using machines which apply surcharges this year - meaning that customers will pay out £42.6 million to have access to their money.

The research also showed that people are confused over how often they have to pay charges. The study found that around 10.5 million people believe that they are charged to withdraw money every month - the real figure is much lower. The bank is calling for operators whose machines impose surcharges to display clear warning signs rather than the more discreet on-screen messages advising them that they will be charged to use the service.

Chief executive Tim Pile said, "All we are saying is that, as with most things in financial services, you should be straightforward with people if they are going to be charged. It seems to me that it is almost hidden." The issue of surcharges for the use of cash machines hit the headlines three years ago amidst consumer anger over the separate issue of so-called disloyalty charges. The charges were imposed by banks on their own customers for using machines operated by rivals.

Next >>>


Home

These articles have been collected from various sources. If you are the copyright owner of any of them, contact us for either a credit and link to your site or removal of the article.