As the UK banking turmoil continues, with rumours that more banks may be in trouble and mortgage rates are about to rise, many are asking the question. “Is our money really safe?”.  The short answer to that is yes!

While the recent turmoil has been brought about by events elsewhere in the world, which have had a knock on effect to confidence and the financial position of some UK banks, it is a situation which will not last for ever.  However, if one of the major UK banks were to close then this would send shock waves through the whole system, and have disastrous consequences for the sector.  This is something which neither the Bank of England nor the other major banks would allow to happen..

Some may remember Barings Bank and what happens there, but this is totally different as that was brought on by a rogue trader and slack financial controls.  Northern Rock, no matter what people may say, are actually a victim of circumstance, although it is highly unlikely that they will remain an independent company for much longer.

The financial system is all about confidence and this is something which will and does effect all in the sector.  The possibility of one of the major banks going out of business would push many customers to retain their savings “under the bed”, and a return to a fear of the sector - this will just not happen.  If the worst ever did happen then there are various compensation systems in place whereby victims would be covered for over 90% of their savings.

The Northern Rock saga is just the beginning of the situation and more banks will almost certainly get dragged into the situation.  While the Bank of England have taken the positive step of offering assistance to the Northern Rock, the market and the lack of confidence is a larger issue. The Bank of England can influence the markets in conjunction with there worldwide banking partners, but there will be a natural process of recovery as participants come to terms with what is happening, and confidence slowly begins to rise in due course.

The UK credit crunch has now taken hold of its first major UK causality, with Northern Rock forced to call on the Bank of England’s “lender of last resort” system, to bail out their business.  While the situation is only short term, it has caused major upset with the Bank’s customers with over £1 billion of deposits withdrawn over the last couple of days.  So how did Northern Rock get into this mess, and is it terminal?

The problem with the Northern Rock business model is the fact that they lend 75% of all mortgage amounts from the inter bank market - effectively borrowing money from their banking counter-parts.  This has left them more wide open than most to the recent disappearance of commercial lenders, in light of concerns within the US financial markets.  As lenders have disappeared from the market, Northern Rock have been pushed into a corner whereby they have had to call on the Bank of England to allow them to agree future mortgages.  So how much will this cost Northern Rock?

While the loan situation is purely a technical phase, the Bank are being charged an enormous 6.75% by the Bank of England, which will reduce their profit margin on future mortgages.  Last year the group made profits of some £500 million, so you can see from their history that they are not a small bank.  Unfortunately, while the turmoil continues and customers clamour to withdraw their funds from the bank, their reputation is being ruined and when the situation calms down they will almost certainly become part of a larger group, with the  likes of Lloyds TSB being mentioned as a possible suitor.

While many may not have been aware of the internal credit market before the recent downturn, it does demonstrate how events in another part of the world can result in the collapse of confidence, and even businesses, in another area of the world.   The financial markets around the world are so entwined that the knock on effects can last for some time, and have disastrous effects.

Northern Rock may be the first major UK bank to hit trouble, but there are rumours that a whole host of others are finding life tough.  This is not the last of the credit crunch problems in the UK, you can be sure of that!

While there are many ways in which the internet has helped the everyday consumer, not all has gone to plan with regards to customer services available - especially in the financial industry.  There are many bank customers from years gone by who were very friendly with their local bank manager, but are they as friendly now? Do they have the same characteristics? Have you actually seen your bank manager?

The chances are that if you opened up an account in the last 10 years you have probably never met your local branch manager, and your relationship with them will be nothing like that of years gone by.  In the 1980s and before, the local bank branch was often the centre of many rural and town communities, everyone seemed to know everyone else and there was always somebody to answer your questions - times have certainly changed!

It is basically since the internet began to play a part in financial services that we have seen the demise of the bank manager / customer relationship.  The old style managers have been replaced by pen pushing figure heads, who do not have any actual control over what they can authorise - everything is now computer driven and cleared by “Head Office”.  Customers seem to just be numbers and there is no real effort to get to “know you customer”.

Costs have been cut to the bare bones, which has instigated the demise of many bank branches, and the heavy promotion of telephone and internet banking.  The banks of today are run purely on financial formulas, dictating how many of a certain product they can sell, what the preferred mix is and issuing targets, targets, targets - so now you may understand why they ship you in and ship you out as soon as possible.

It is looking more likely that if you want to see a representative of your local bank, not necessarily someone who will know you, you are going to have to pay a fee in the future.  The bank manager / customer relationship has gone for good and is highly unlikely to return in any form approaching that of the 1980s and before.

The internet has been excellent for some things, but for others, well……..

In a move which has rocked the banking industry, a judge has ordered Barclays Bank to stop issuing penalty charges to a customer who is suing for repayment of “illegal” charges.  In a  welcome move for the consumer, Judge Abrahams at Luton County Court issued the order against Barclays in relation to a case involving Nadine Fry, who is looking to reclaim £1500 in charges from the financial giant.  So what does this mean?

There are two real issues to consider here which include :-

The Consumer’s Position

Over the last few weeks there have been reports of banks adopting aggressive strategies to try and stop customers pushing through with their claims.  People have seen charges added to their accounts, accounts frozen and in some case accounts have been closed altogether.

This freezing of additional overdraft of penalty charges has given many consumers some breathing space, and allows them to push forward with their claims without the threat of further repercussions.

The Banking Sector’s Position

The last 12 months have seen the banks adopt a number of strategies to try and influence the cases against them including, delaying tactics, the threat of chasing customers for court costs and an often heavy handed approach to the consumer.  The ruling by Judge Abrahams will have one major effect, it will ensure that the stalling tactics stop, and we finally get towards some kind of test case to clarify the situation once and for all.

Conclusion

While the recent ruling by Judge Abrahams has been welcomed, it is not an approach which all judges will take. However, it will have the effect of focusing the mind of financial sector a little more, and ensuring that we arrive at a definitive ruling in the not too distant future.  If the recent ruling was adopted by more judges, then the banks would see much of their profits on hold - something that would please neither the management nor shareholders alike!

While Free Banking had appeared to be part of the UK banking vulture until a couple of years ago, there are signs that the days of Free banking may now be numbered.  As we covered earlier in this blog, there have been some serious hints from the major financials who are looking to add new income streams to their businesses in the future.  The Office of Fair Trading investigation into bank charges has been the catalysts for change, and it looks as though the consumer may well be the one to lose out.

A recent investigation by the Guardian using the same basis as fee accounts available at the moment, has calculated an average fee of around £300 per year for each and every person with a bank account.  The fee estimate consists of charges for withdrawing funds, credit card transaction and general monthly charges.  While £300 is the figure mentioned for the average user, some of the more active bank accounts could draw charges approaching £500 a year!

Apart from the fact that the current conception of free banking is incorrect (the banks use your deposits to create loans for customers, thereby making a return off your money), we have seen a major reduction in the number of bank branches in the UK over the last few years.  It seems that we are being asked to pay more, for less of a service, something which is very hard for many to take.  Internet and telephone banking are the preferred mediums for the financial institutions, where costs are less and turnover of calls is much quicker, indeed HSBC recently opened a bank which differentiated between those paying a fee and those still using “free” banking services.

Personal contact with your bank manager is now a thing of the past, in favour of online and telephone services.  Is this really what the UK consumer wants?

In a move which should finally clarify the situation regarding bank charges, HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide have agreed to a test case to obtain a ruling as to whether current overdraft charges are illegal.  With the full backing of the above banks, the Financial Services Authority (FSA) have filed an action arguing that overdraft charges are unfair.

This situation with regards to the thousands of compensation claims which have been received by the banks has reached something of a stale mate.  Customers keep sending in their compensation claims, although the majority of the UK banks have now resorted to stalling tactics with many now unwilling to payout compensation - despite the industry as a whole paying out millions of pounds over the last few months.

While the banks continue to argue that their charges are not unlawful, they have recently been criticised by the Office of Fair Trading and a number of court judges, for their tactics used to pressure customers into dropping cases.  It appears that a stalemate has now been reached, something which the banks have been trying to avoid for months.  Their strong arm tactics of late have given the FSA the perfect excuse to try and resolve the issues once and for all - but who will win remains to be seen!

There may also be a number of internal working issues which the banks are unwilling to let the public see, something which may well hinder the defence of the banks when the issue finally goes to court.  It certainly promises to be a very exciting court case, with millions of pounds riding on the outcome.

It can be difficult to get to the bank before it closes during the week. If you are anything like me, up and out by 8am and not back until gone 6pm, then you will find that your working hours mean that you are never free when the bank is open (typically 9am until 5pm weekdays but do check with your local branch). So, what do you do if you need to check your latest statement, transfer money between accounts or need to deposit some money into someone else’s account? This article addresses precisely that question.

It has been possible to do your banking over the phone for a fairly long time. However, it only ever managed to gain limited popularity, as it is of only very limited use. Account holders cannot see their latest statement right in front of them, they cannot see the standing balance of each one of their accounts and in order to do anything with their money they have to go through a telephone operator, who expects the account holder to give out all of their personal details without a moment’s hesitation. This is quite unacceptable for a lot of people, and understandably so.

There is now an alternative. It has probably been around for a little longer than you would imagine but the time since its launch has given banks the opportunity to iron out any creases. Online banking is now secure, fast, efficient, easy to use and environmentally friendly. You simply log on (which in the case of HSBC requires an IB number, your date of birth and 4 randomly selected digits from your 6 digit personal number - helping to protect against phishing) and away you go. You can view statements, transfer money between accounts send money to others and even set up entirely new bank accounts, including high interest online savers.

There are still some security concerns that you should be aware of. Look out for the padlock in the status bar of your screen to show that you are on a secure ite and always go to your bank’s site directly through your browser, never click on links in emails.

With more people going to university than ever before, finding sources of funding for their education has become something of a dilemma. As a result, students have been forced to take out large loans in order to cover the cost of their tuition fees and to pay the price of living in a university city, which is often rather high.

As well as taking out loans, many students receive a maintenance grant. This is an amount of money, received from the government, on an income assessed basis, that is meant to help towards living expenses while at university. This, coupled with the money from the Student Loans Company, means that students have a lot of cash coming into their accounts at the start of term. However, by the end of term, many students find themselves considerably overdrawn. To accommodate this fluctuation in individual student affluence, many banks offer specialised student accounts, coupled with a number of incentives.

HSBC have offered students things such as MP3 players and CDs to students that sign up with them. Natwest offer a free Young Person’s Rail Card for five years, worth . This sort of thing certainly does the job of attracting students to these banks. However, is it really the free gifts that students should be looking at when considering who to bank with? Probably not.

The level of interest-free overdraft offered, should probably factor more prominently in the decision making process. If this is the primary consideration, then Halifax comes out as the clear winner, with an interest free overdraft of up to 0 in the first years. There are no freebies with this account but the overdraft is more than double what a lot of banks offer. Thrifty students will see an opportunity here.

Open a high-interest online savings account and transfer your overdraft money into there. It means the money will be earning for you but it is not quite as inaccessible for you if you need it, compared to how it would be if you had put it into an ISA. In this way the interest you collect will be reward enough. Alternatively, collect your free gift and do exactly the same with the smaller interest-free overdraft offered by the other banks.

While the UK is currently in the grip of the banking charge compensation issue, it seems that there may be a knock on effect to worldwide banks.  Current estimates indicate that thousands of UK banking customers have successfully applied for the repayment of millions of pounds in “over charges”, with banks often shying away from court, and settling “on the steps”.  However, there have also been a number of high profile cases lost in court for various reasons.

It is now believed that banking customers in countries such as South Africa, Australia, Israel and the Czech Republic have started to revolt, with many making official complaints about their local charging structure.  In fact the Israeli government have appointed the country’s Central Bank to regulate the bank charging structure of the country, with changes not too far away.

The UK situation has received much press worldwide, and it appears that this has been the seed for the ongoing revolt.  As more and more people take a hands on approach to their banking, weird and wonderful charging mechanisms are being revealed.  For many banking customers around the world it has been a real eye opener to see what amount of their income actually goes on charges. 

Whether the authorities can actually instigate an approach similar to that in the UK remains to be seen, but it seems highly likely that the banking industry will be under pressure for some time to come.

The internet has opened up a whole new market to many consumers, and the financial sector has been effected more than most.  As consumers endeavour to squeeze the last penny out of their income, many of the UK population use the internet to find the best rates and the best offers around - trying to save themselves a few pounds in the process.  But how simple is it to move banks?

In the past, many people have shied away from moving banks because of the excessive amounts of paperwork involved, phone calls and problems with direct debits and standing orders.  Thankfully, over the last few years (since the introduction and take up of the internet) we have seen some major changes with regards to the process of transferring banks.

Now it is often as simple as filling out a form online, printing off a copy, and posting it to the bank.  The bank will then take care of the transfer from your old bank, ensuring that the exact set-up of your account is transferred, including direct debits, standing orders, etc.  While this process may take a little while, it is no where near as cumbersome and long winded as it has been in the past.  It is possible to take advantage of the many offers which pass your way each day - with very little effort from you!