How banks make £341 a second from you: the loan, savings and insurance tricks that boost profits

| February 29, 2012 | 0 Comments

By
James Coney and Ruth Lythe

Last updated at 11:21 AM on 29th February 2012

Britain’s largest banks made £10.7billion from their High Street customers last year — despite being hit by record fines for investment mis-selling and receiving millions of complaints.

James Coney and Ruth Lythe reveal how the banks had another bumper year thanks to your custom.

CUSTOMERS EQUAL CASH

Despite what they insist, the biggest banks raked in ever greater amounts from their High Street customers last year.

The big five — HSBC, Lloyds Banking Group, RBS/NatWest, Santander and Barclays — groaned in their results about the fact their profits had been dented by the eye-watering sums they have been forced to set aside for mis-selling payment protection insurance (PPI) to millions  of customers.

But strip out the compensation they have had to pay for fleecing borrowers and the banks made £10.7billion from their day-to-day High Street business.

Strip out the compensation they have had to pay for fleecing borrowers and the banks made £10.7 billion from their day-to-day High Street business

Strip out the compensation they have had to pay for fleecing borrowers and the banks made £10.7 billion from their day-to-day High Street business

Anyone with a loan, insurance, current or savings account with these big banks helped them to this profit, which is the equivalent of £341 a second.

And the biggest beneficiaries are bailed-out RBS/NatWest and Lloyds Banking Group — which includes Halifax and Bank of Scotland — who received £65.5billion in taxpayers’ money to keep them afloat.

Lloyds reported it made £300million less last year than in 2010 from its High Street customers. But had it not been forced to pay out £3.2million for PPI mis-selling, the bank could have shown increased profits from savers and borrowers.

What the big five banks made from you

RBS/NatWest made £1.9billion profit from customers — £530million more than in 2010. Add in the £850million it paid on PPI claims and its total UK retail profit would increase further.

Only Santander and Lloyds made less overall from customers in 2011 than in 2010.

Despite these surging profits, banks behave as badly as ever.

Since the start of 2011, HSBC has been fined £10.5million for mis-selling investments to the elderly and Barclays was fined £7.7million and ordered to pay £60million in compensation to careful savers who lost money in its investments — both record punishments at the time.

RBS/NatWest was fined £2.2million for covering up customer complaints when asked by the City watchdog, the Financial Services Authority.

On top of this, the bank was recently told off for misleading adverts that claimed the bank would not close branches when they were the last in town.

Santander was third in Money Mail’s Wooden Spoon award  after readers voted it among the worst companies in the UK for customer service.

And it has been fined for failing to properly explain compensation rules to customers who took out risky investment bonds.

Figures out this week show there were 106,193 complaints to the independent Financial Ombudsman Service between July and December last year.

TWEAKING YOUR RATES

Key to bolstering their profits is fiddling with interest rates for savers and borrowers. Banks can make millions by increasing the gap between what they pay out to savers in interest and what they charge to mortgage borrowers and credit card customers.

These little tweaks can seem only a small amount, but multiplied over millions of customers they can mean fat profits.

For example, in 2010 the average difference at RBS between what it paid savers and what it  charged borrowers was 3.91  per cent. In 2011 it was 3.92  per cent, but even this small amount helped the bank generate extra interest of £194million.

Barclays made an extra £248million last year from the gulf between savings and borrowing rates

Barclays made an extra £248million last year from the gulf between savings and borrowing rates

Likewise, at Barclays the gulf between savings and borrowing rates made the bank an extra £248million last year. However, it has not been an easy year for banks to milk their customers. 

Building societies have been
desperate for funds in the  past 12 months so have been producing some
top-paying savings accounts.

This has meant banks have been forced to increase their rates.

On
one hand, this draws in more customers, who in a year or two can be
dropped to a rate paying almost nothing. This makes them very
profitable.

But in the
short term it means profits take a hit. If, on top of this, you don’t
have the best mortgage deals, it can hurt your bottom line. This is what
has happened at Lloyds Banking Group.

Demands for it to have more deposits
from customers and take fewer risks with loans to homeowners meant the
income it pulled in from interest plunged by  £1.4billion.

Some
of the bank’s brands have consistently fought to be at the top of the
savings Best Buys  tables, with Cheltenham Gloucester in
particular offering good cash Isa deals.

As a result, the amount of savers’ cash it holds increased by 6  per cent. But where they lose money in one area, banks find ways to make it back in others.

CLAIMS REJECTED

Banks have taken a huge blow from mis-selling payment protection insurance.

After a two-year battle, they lost a legal ruling and are having to pay billions in compensation.

But they never learn their lesson, and banks are increasingly trying to find new ways to  replace the money lost in this scandal.

As a result, the Financial Services Authority is believed to be monitoring the sale of other types of insurance where premiums are cheap. But there is evidence banks have found another way to prop up insurance profits — by paying out fewer claims.

Lloyds’s profits from insurance soared by £85million. Payouts on claims slumped by a staggering 37  per cent — from £542million in 2010 to just £343million.

Last month, we revealed how Lloyds had left 60,000 pet owners without vital cover for their beloved animals when it suddenly decided to stop cover it had promised would be for life.

RBS is also taking a tougher stance. It boasts that its Direct Line and Churchill brands are using new computer technology to boost profit by hiking premiums for some drivers.

As a result, premiums fell slightly, but payouts on claims have plunged by £1.2billion. RBS says part of this was due to better weather in 2011, which resulted in fewer claims being made.

HOME LOAN DECEPTION

The best advertised home loan rates have plunged since this time last year.

However, the lowest rates available are on offer only to those with whopping amounts of equity and perfect records of repaying debts.

Thousands of first-time buyers and those with only small deposits are being forced to pay much more.

As house prices continue to fall, this threatens to catch out larger numbers of homeowners. HSBC, which had previously offered some of the best deals — particularly through its First Direct subsidiary — admitted in its results it is  taking fewer risks on people with small deposits.

Struggling: Thousands of first-time buyers and those with small deposits are being forced to pay much more than the advertised lowest rates

Struggling: Thousands of first-time buyers and those with small deposits are being forced to pay much more than the advertised lowest rates

And despite consistently offering the cheapest rates, it confessed these are largely not available to new customers.

Instead it reserves the top deals for existing customers with a current or savings accounts. Its average borrower has a deposit of 47  per cent of the property value, an increase on 2010.

On top of this, it is also making tougher checks on applicants.

In its results, HSBC boasts about setting aside £350million to lend to struggling homebuyers with deposits of 15 per cent or less. But in reality this is just 2,000 or so  first-time buyer properties.

At RBS, income from mortgages soared by £293million.

Other banks, such as Santander, have begun to make bigger profits from customers who come to the end of cheap fixed-rate and tracker deals and move onto its standard variable rate of 4.24 per cent.

This would cause customers’ interest rates to soar. Someone coming to the end of a deal at 2.99 per cent, for example, would have monthly repayments of £711 with a typical loan of £150,000.

But on a rate of 4.24 per cent, they would have repayments of £812  a month.

BORROWING CRACKDOWN

The past year has seen more competition on credit cards — with good interest-free deals on balance transfers and purchases. But if you haven’t signed up for a new card, then you are probably paying through the nose for  your spending.

Average credit card deals are 17.28 per cent, the highest for a decade, and an increase from 16.69 per cent in February last year.

This may not sound like a lot. But there are 61million credit cards, which have £58billion of spending sitting on them.

Rate rises: Average credit card deals have hit their highest level for a decade

Rate rises: Average credit card deals have hit their highest level for a decade

An increase in interest rates of 0.59 percentage points means an extra £342million profit for the banks. Average overdraft rates have also shot up in the past  year to 19.52 per cent — also the highest on record.

Small changes in this may also not sound like a lot, but there are 54million current accounts in  the UK.

Banks continue to penalise those who go into the red. Santander reaped the rewards of switching its overdraft policy and saw income from charges soar by 12  per cent.

Since then the bank has doubled its daily arranged overdraft fee from 50p to £1. It also raised the cap it places on the number of days you can run up charges from 15 days to 20 — meaning you could pay £20 for going in to the red for an extended period. First Direct and HSBC are the most expensive for a large overdraft, charging £150 a month.

The costs of bank accounts that have a monthly fee has also risen, according to figures from researchers Defaqto. The average monthly cost for Britain’s 69 packaged accounts was £15.44 in 2011, compared with £14.92 in 2010.

This tweak again effectively means an extra £56million income for the banks.

And average personal loan rates for someone borrowing £5,000 are 15.52 per cent, the highest on record.

SAVINGS MUDDLE

Competition from building societies has been a real thorn in the side of the big banks in the past 12 months.

Building societies are desperate for savers’ money and so have been bringing out top rates.

This has forced the banks to take a short-term hit on their profits because they also need customer deposits.

Paying good rates costs them money, but as many of these accounts have bonuses that run out after a year or 18 months, there is the promise that these costly customers will one day be very profitable ones.

Barclays, for instance, opened 1.5 million new accounts in 2011; Halifax has had success with its account that pays a bonus prize every month; and Santander has had 7,500 customers deposit more than £22,000 in its account that pays interest upfront.

But large High Street banks continue to penalise savers by paying them a pittance.

On fixed-rate deals, HSBC, Lloyds TSB and Barclays all pay a pitiful 1.6  per cent after tax (2 per cent before) to savers willing to tie up their money for a year.

Yorkshire and Chelsea building societies pay 2.72 per cent (3.4  per cent) and Investec Bank 2.84 per cent (3.55 per cent) .

And if you do not move your money as soon as possible after your fixed-rate bond has come to an end, you can find it has been dumped into an account that pays just 0.08  per cent (0.1  per cent). With Halifax, your money ends up in its Maturity Account paying this miserly rate.

Also, banks continue to dupe you by launching an account with a similar or the same name as one with a good headline rate — and hope you think you are in that version rather than in the earlier one.

For example, some savers in Halifax Isa Direct Reward earn 3 per cent tax-free, but for others the rate has fallen to just 0.5  per cent.

Banks also have a string of older accounts where they pay savers 0.08  per cent (0.1  per cent) or just £8 interest on each £10,000 in the account.

That is just one-fifth of the current base rate.

HSBC is even worse at 0.04  per cent (0.05  per cent) on its Flexible Saver.

Accounts paying just 0.08  per cent (0.1  per cent) include Halifax 60 Day Gold, Halifax Variable Rate Cash Isa, Santander eSaver Issue 1, Santander Instant Saver, Barclays Cash Isa, Barclays Day to Day Savings Account, Lloyds TSB  Gold Saver, Lloyds TSB Flexible Savings, NatWest First Reserve, NatWest Savings Direct and RBS 60 Day Isa.

Here’s what other readers have said. Why not add your thoughts,
or debate this issue live on our message boards.

The comments below have not been moderated.

It is called Skimming and they are the professionals at it too. No better than a street lender except they now have the trappings of respectability.

It is time savers flexed their muscles. Take all your savings OUT of the banks – after all, it’s not as if it’s making you ‘much’ money in there. After a week or so the banks will be panicked into doing something about it. THEY don’t care a whit about YOU. But YOU have the power….. use it.

The solution is simple; write to your pension fund and tell them you are prepared to accept a smaller pension if they stop investing in the banks.

Santander is buying RBS this year (YES! I heard it direct from the ‘horses’ mouth) – so I take it the government will get their £45b back??

It’s not how much they make, it’s how they make their money that worries me. We need much stronger regulation. The city of London is where all the scandals have been perpetrated….. Lehman bros, AIG, Bernie Madoff , the Icelandic banks and MF global to name but a few. It was ‘light touch’ regulation that allowed all these excesses to happen. London is known to be the biggest financial ‘laundry’ in the world

How about ‘The world’s LOCAL bank, HSBC? When I was in Hong Kong I went to the bank, and at the counter I was told I would have to go outside and use the cashpoint, despite having my card and passport ready. Guess what – I was charged for the transaction too.

NOT FROM ME ! I guarantee you !

Singing Banks Gimmick banks… adverts are ridiculous..take the singing halifax..tosh… ask yourself why are they in the news for claims ..and mis selling..and now they charge for everything..free banking what a joke… listening bank..pah!

Many years ago Bank Managers were respected and revered by the public. They could make appointments with them to discuss their finances/businesses. Always a certain type, older bespectacled gentleman. Now pretty much they are all ages and are not respected but are riff raff intent on trampling over anyone including their neglected families to climb up the corporate ladder.

They forgot to add that when transferring money from one country (in Europe) to here they like to hold on to that money just to earn themselves the interest.

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