Friday, April 13, 2007

Internet 1 Banks 0

[reading: Neil Gaiman, "Fragile Things"; recently Gina Ford, "The New Contented Little Baby Book"]

Maybe this Internet thingy will catch on after all.

I wanted to change my savings account to something that paid more interest, but it seems you can't just fill out a form. Instead the branch staff told me I'd have to wait until I could get an appointment next week and spend 45 minutes discussing it with a financial advisor.

So I went home and rang up to close the old account anyhow. This took more time than setting up a new savings account with an online bank—I know this because I did it during the 12 minutes I was waiting on hold.

<rant subject="banks">

I picked my existing savings account because it had their highest rate, so I was surprised that its rate had dropped low enough that I was losing money in real terms. On asking, I was told it was because it was an "old" account, and that they only have their best rates for the newer products. The rates are even worse for the older accounts that can't be opened any more.

So you can't just pick an account and assume that natural competition between the banks will keep the rates fairly close to the best of the market—you have to check every couple of years to see if your account has been superseded.

Presumably this also means that there are plenty of customers who never notice this and just trust that they're getting a fair deal. To me, that seems effectively the same as a door-to-door conman, scamming little old ladies, except it's being done wholesale rather than retail.


And another thing, while we're on the subject of dubious business practices from banks. When I looked at the comparison sites for cash ISAs, the Barclays 'Tax Beater' cash ISA stands out with a rate (6.5%) that's distinctly better than any of the competition.

However, the devil is in the details. Looking at the small print, this rate only applies for the first 12 months; the true equivalent long-term rate is 5.5%—which would put them rather further down the comparison tables.

This is a common trick, relying on customer inertia as above. But there's more: extra small print that says they don't allow any existing cash ISA funds to be transferred in—which means the higher rate will only ever apply to £3000 (at most) for one year.

So the headline rate of 6.5% that gets them to the top of the tables (and that they trumpet on their advertising) only costs them £30 per customer—which is pretty reasonable, as customer acquisition costs go. Nice scam.

</rant>

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