Merryn's Blog

Big banks: Less good citizens than oligopolistic gangs

Our big banks want you to think of them as friendly helpful organisations. Given the awful products and service available on the high street, that's usually a mistake.

Last week, Bob Diamond, the CEO of Barclays, was sent out with instructions from his PR team to make nice with the BBC. So, to the extent he could, he did.

He gave a stunningly patronising lecture in which in explained to us part of what banks do (the good part) and left out the rest. Then he claimed that banks are and will continue to be good citizens.

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Saga's Paul Lewis pointed out that most people judge the banks not just on their role in the destruction of the global economy, but on the way they treat them on the high street. He then said that he saw little evidence of good citizenship there. That, of course, is because there isn't much.

Instead, there is an oligopolistic gang of huge corporates doing their utmost to remove as much money from as many people as possible. Lewis offered as evidence the PPI mis-selling scandal. But that is, of course, just the beginning.

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Think overdraft charges, packaged bank accounts, horrible investment products, misleading upfront fees on overdrafts, savings accounts offering 0.01% interest, and so on. And on and on and on. These things aren't part of the past. Open any paper, read any press release, go into any bank branch and you'll find a sub-standard product.

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Take the most recent offering from Santander. It is a three-year savings bond that comes with what I think is a unique feature: you agree to lock your money away with them and they give you all the interest due over the period upfront at a rate of 3.36%. That means that if you deposit £12,000 you'll get £1,000 deposited into your current account immediately.

That might sound pretty good particularly in the run up to Christmas and it has certainly been favourably received so far. If you can get and spend the money you are due now, you can mitigate the effects of inflation on it: with the RPI at over 5% you might think your money is better spent than kept for, example.

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But look at the deal carefully and you will see it really isn't a very good deal at all. First, 3.36% is far from the best of the rates on the market for a three-year bond. Go with the Yorkshire Bank or the Clydesdale Bank and you can get 4.3%. Go to govenormoney.com and you can get 4% from Saffron Money. And go to the Post Office and you can get 0.25% over RPI inflation every year, or a catch-free 4.21% on a three-year bond.

Worse, 3.36% isn't even the best rate on offer from Santander: it pays 3.55% on its two-year bond.

There's more. Usually interest is compounded. In this case the interest is paid just on the original amount. This lack of compounding makes a big difference over time around £200 over the life of the bond in this case, assuming an initial investment of £12,000.

However, the biggest restriction with the account is simple. Should you want one (and I can't see why you would) you will need to open a Santander current account. And here the key to the whole thing. Santander doesn't have much of the current account market at the moment and those who do have accounts with the bank aren't crazy about them. They have a customer approval rating of a mere 39% on Which? Magazine numbers.

So it makes sense to see this new account as no more than a clever marketing drive to bump up Santander's share of the lucrative current account market.

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Good citizens? Pah. If you want a good current account get one at First Direct (they have the highest approval ratings in the UK). And if you want a savings account, open an account at governormoney.com and take it from there.

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