Watch out for this banking rip-off
Harvey Jones explores an extremely sneaky tactic banks use in January to rip you off.
It's every banker's dream: to persuade their customers to use them as a one-stop shop for all their financial services.
Plenty of people do this already, either out of laziness, misguided loyalty, or because they believe their bank really does offer the best possible deal. Now bankers are making a concerted push to convince the remainder, according to new research from Defaqto, offering discounts and special deals to 'existing customers only' via their 'January sales'.
The one-stop flop
I've never been in favour of the one-stop shop in financial services, because no single company can offer a market-beating deal across every product. Your bank certainly can't, and it doesn't want to either.
Here's a sample of the kinds of discounts on offer to existing customers, to lure you into thinking you've got a good deeal:
Money off mortgages
- Halifax is offering its current account customers discounts on its mortgage range, shaving between 0.2% and 0.4% off its interest rates.
- Abbey and Alliance & Leicester already offer current account customers free valuations and a cashback on certain mortgages, while HSBC Plus and HSBC Premier current account customers get a 0.15% discount off selected mortgages.
- Building society Nationwide is offering 90% mortgages to its FlexAccount current account customers, while NatWest and Royal Bank of Scotland also offer mortgage discounts.
Cheaper rates for borrowers
- Halifax customers get a 12-month 0% interest-free period on purchases when they take out its All-in-one credit card, up from the standard nine months.
- Nationwide current account customers get unsecured loans for between £7,500 and £14,000 for up to five years at a discounted 7.6% APR.
Savings on savings
- Halifax customers get an extra to 0.2% on its variable rate savings products.
- First Direct, HSBC, Lloyds TSB and Norwich & Peterborough building society all offer regular monthly savings accounts exclusively to their current account holders.
These promotions are on top of the vigorous cross-selling of mortgages, savings, credit cards, personal loans, Isas and pensions that the big banks have been routinely doing for years.
Be warned. Nine times out of ten, just because your bank is offering you a slightly better mortgage or savings rate, doesn't mean that it's a great deal. And the more you shop at your bank, the worse you are likely to fare.
Shopping around
In fairness, some of these special offers do bring the banks to within a whisker of the market leaders. Due to the loyalty discounts:
- Halifax customers can get a two-year fixed rate mortgage reduced from 3.99% to a competitive 3.69%, but only up to a low 60% loan-to-value. That is just 0.2% behind current market leader Cumberland building society, which offers a two-year fix at 3.49%, again up to 60% LTV. Both mortgages have a £995 arrangement fee.
- HSBC Plus and HSBC Premier current account customers can get a competitive two-year fixed rate mortgage for 3.84% (discounted from 3.99%) up to 75% LTV with a £599 booking fee. Again, this isn't so far behind the market leaders.
- The Nationwide discounted 7.6% APR loan is the market-leader - it's just a shame it's only available to existing customers only.
So yes, the big banks do offer good products from time to time, and you should always include them in your product search. But you really don't want to use them as a one-stop shop.
Do your research
Take the case of a customer who chose to take out a mortgage, savings account, cash Isa and credit card all with the same high street bank... let's say Lloyds TSB. How would they fare compared with shopping around for the best buys?
|
Product |
Lloyds TSB |
Best buy |
Shop-around rate |
Shop-around saving |
|
Mortgage |
Two-year fix until 31 March 2012: 4.09% up to 60% LTV + £895 fee |
Cumberland building society: 3.49% up to 60% LTV + £999 fee |
Interest saved: 0.6%. |
Saving on a £150,000 interest-only mortgage: £848 (£1,696 over two-year term). |
|
Instant access online savings account |
eSavings account: 1.6% on £1 and above, including 1.5% bonus for 12 months |
AA Internet Extra Account: 3.15% AER on £1 and above, including 2.65% bonus |
Extra interest earned: 1.55%. |
Extra interest on £3,000: £46.50 |
|
Cash Isa |
Cash Isa Saver: 2% including 1% bonus for first 12 months |
Santander: 3%, including 1% bonus for first 12 months, on minimum of £9,000 |
Extra interest earned: 1%. |
Extra interest on £9,000: £90 |
|
Credit card |
Platinum MasterCard: 0% APR on balance transfers for 12 months (with a 3% fee) and 0% on new purchases for three months |
Virgin Money Credit Card MasterCard : 0% APR on balance transfers for 16 months (with a 2.98% fee) and 0% on new purchases for 3 months |
n/a |
n/a |
Stop before you shop
Lloyds TSB's deals aren't all bad, its Platinum MasterCard, for example, is pretty good. But in this example, shopping around for a better mortgage, savings account and cash Isa saves you an extra £999 a year, or nearly £2,000 over two years.
So, you can see why you wouldn't want to use Lloyds TSB (or any bank) as a one-stop shop, when you can browse through the entire online financial services retail park and save yourself hundreds or thousands of pounds a year.
The moral of the story is: however dazzling those discounts look, always shop around and compare products before you make a final decision. Don't listen to your bank. It has its own best interests at heart - not yours!
Compare mortgages, savings accounts and cash Isa at lovemoney.com
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Comments
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You also need to do regular checks on your savings accounts! After selling our house we had 2 savings accounts with Lloyds TSB and they gave us a reasonable interest rate at first - however when I checked recently I was shocked to see that one account had been changed to 0.1% and the other to 0.01% It seems that banks have a strategy to recommend a product and then over time change what that product offers - if you contact them to challenge this, they will kindly offer to switch you to another better product as if they are doing you a favour but I would suggest that they are counting on all those out there who never get around to checking up on their savings accounts. The strategy of creating new products and phasing out or reducing what existing products offer is purely to make more money at your expense. Be vigilant with your bank and keep up to date on any new products. Banks are in debt and need to make more money...you have money...go figure!
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Although loans are not not mentioned here, another sneaky trick to look out for. Watch out for Sainsburys finance (and others I suspect). Medium sized loans advertised - 7.9& APR - looks attractive until you find that you are forced to take a two month payment holiday for the first 2 months of the loan - this completely ofsets the actual amount paid and in reality significanly increases the real APR that you are paying.
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Having read your article, I felt compelled to comment. After many hours of online research looking for the best plan for moving my ISA, fixed term bond, and finding the best bank account for my needs, I made an amazing discovery! If i had kept my ISA and bond as the same, whether in the same building society or a different one i would have had a really miserable return. I decided to call my present current account provider (Santander), and was told it was possible to get a 'preferential in credit account'. To my surprise, this account pays 6% interest on balances of up to £2,500 for the first year! (At present i get only 0.10%) It goes to show, doesn't it that it ALWAYS pays to look at all angles to take care of our accounts/savings. I know where my money will be going for the next year, don't you?
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17 January 2010