Lloyds TSBs "Wonderful" Offer

Sounds pretty good to me, probably not enough to switch my account but I'd be quite happy if Barclays followed.

? 4.2% of £5000 is £14 a month after basic-rate tax, not peanuts.

perhaps i look at it differently as i don't have a spare 5k to leave lying about in a current account!

Well, it all relative, but I can see merit in the above. Firstly, I really don't understand your objection to interest rates being quoted as gross, everyone does it so at least one can compare, and to do otherwise would be misleading to the increasing number of people that pay higher rate tax. Quoting all interest rates gross is the best way to present the data. Also, if you do happen to be in a position where you don't pay tax then you will get that headline rate because you can reclaim the tax at the end of the tax year.

I suspect this account is being aimed at people as a main current account not a savings account so, if they're like me, a salary gets paid in once a month and during the month it all goes out again, either by paying bills but also by transfers to longer term savings accounts and other investments. If this is how the account is used then I wouldn't think that many people are likely to leave more than 5K in their current account at the end of every month so the lower rate above 5k certainly wouldn't be a worry for me and knowing that the balance during the month is earning a good rate of interest would save me doing what I do now which is to calculate exactly how much spare cash I have each month and as soon as the salary hits my account I transfer any surplus to a higher interest account immediately (which isn't really much of a burden with internet banking).

To be honest, if I didn't have this irrational aversion to changing my main bank account I would seriously consider switching to this account. The only bad thing I see about it (from your description) is that there is no longer term guarantee on interest rates beyond the end of 2004.

- Julian.

Of course there isn't. Banks can't possibly make a profit from a current account with no fees that pays interest above the base rate. Like with credit card 0% balance transfers for 6 months and short term discounts on mortgages, the bank often make an initial loss as they know apathy rules and most customers won't bother switching to the next good deal when their short term good rate expires.

"Andy Pandy" wrote

Not even if they take (some of) that money and lend it to other people, charging them *more* interest than they pay to the current account holders?

If they pay Base Rate +1% on current account, and charge Base Rate +5% (say) to the borrowers, then they may well be able to make a profit, shouldn't they?

I wouldn't have thought so, allowing for the costs of running the current account, overheads, provision for bad debt etc. The proof of the pudding will come when the guaranteed period runs out, if they keep their current account rate above the base rate long term (for existing customers) I'll eat my computer keyboard.

Maybe. Depends on the risk profile of the borrowers. But why would they pay base + 1% to a current account holder when they can borrow it on treasury deposit at base rate.

"Andy Pandy" wrote

Yum! - That'll be tasty!! :-)

"Jonathan Bryce" wrote

Of course. I'm not suggesting they *will* make a profit like that, just that they *might*; - Andy had said "Banks can't possibly make a profit from a current account with no fees that pays interest above the base rate". I don't believe his comment to be true (in the sense that banks *could* possibly make a profit that way...)

"Jonathan Bryce" wrote

Well, the OP already quoted that they are paying base+0.7% - I just rounded it a little to save some typing, in a similar hypothetical case.

But isn't there some rule that they can't borrow more than 10 times what they hold on deposit? So paying a little over base for a few hundred k seems a good move if that allows them to pay base for a few million from the treasury.

Oh and don't forget...

Currently if you have a Lloyds Gold or platinum account you pay a monthly charge (of 8 or 12) IF your balance falls below 1000 in the month. Keep your balance above that and the account is free. If you upgrade to the new 'plus' account version - you pay this charge no matter what!!!

Oh and when you get two thirds of the way through the application process it mentions something like '...the terms of the banking code of practice do not apply to this account....'

Oh, and you're only allowed 10 cheques free per month...

Nice!

That sums up my impression of it too. And after 2004 the rate can't be much worse than the derisory 0.1% I'm getting from Nat West. So the basic reason for not going ahead comes down to the inertia and apprehension that my monthly income and standing orders will all get screwed up...

Oh, and the vague hope NatWest might try to catch up, I suppose.

BTW, if you'll excuse the OT digression, you implied the ease of Internet transactions. I use it only to occasionally make deposits to my Egg Savings A/C. On EVERY occasion that I've tried to add more than £1,000, the transaction has been rejected. Egg blame NatWest's security measures, NatWest deny it. Eventually, multipl transactions are necessary in practice to achieve what should have been trivially easy. So, no, I'm unimpressed with Internet banking so far.

In message , Tim writes

No. Running a branch network and the clearing systems is incredibly expensive. In general a Bank will endeavour to cover its running costs form charges, and then make a profit from its money lending activities. It cant develop a sufficient margin on the turn obtained on lending deposited money. If you look at a banks accounts you will see that its overall lending margin is far far less than the +5% you describe.

I'm NatWest too.

My, we do have a lot in common! As well as NatWest, I also have an Egg account. I have had the same problem regarding transfers over 1,000. I might be able to help you here, or at least explain what is going on.

Are you trying to make the deposits into your Egg account by using your NatWest switch card? If so then this is the problem. NatWest seem to have a very low safety limit set on their Switch cards when used for online transactions, typically 1,000. What this means is that when you enter your Switch card transaction into the Egg web site for 2,000 (for instance) the NatWest system rejects the debit request made by the Egg website because it exceeds your safety limit. NatWest obviously claim this is for security but, for many many people wanting to use a Switch card for shuffling money around, it makes the card pretty useless. I think that if you really complain to NatWest loudly enough (preferably with support of your local branch manager) then you might be able to get the limit increased somewhat.

The solution I now use is to action all transfers using BACS payments. So, if I want to move money to my Egg account then, rather than going to the Egg web site and entering my NatWest Switch card number so that the Egg systems "pull" the money out of my NatWest account, I go to the NatWest website and use the "Third Party Payments" feature (under the "Manage Money" option on the left of the screen) to initiate a BACS transfer so the money is "pushed" from NatWest to Egg. The downside of this is that the transfer takes 2 to 3 days, not instant, but there is either no limit (or a much higher limit) on the funds you can transfer. To do this you need to know the sort code and account number for your Egg account, but that is written on your statements, and you only need to enter it into the NatWest site once because they provide an address book to store details of accounts that you regularly make payments to.

- Julian.

I think your referring to the liquidity ratio, otherwise known as the 'how many times can we get away with it' ratio. I seem to remember talking you about things like this about 7 years ago when the topic was discount rates etc.,

It refers to how much of its deposits a bank must have available for instant withdrawal. Overall its liabilities cant exceed its assets at all.

Well they only borrow from the treasury if they buy treasury paper of course. The rest is borrowed mostly on the LIBOR market.

I think you must be right there, I transfered 50k into my egg account using my LloydsTSB Debit card (5 seperate transactions within minutes of each other). and had no problems what so ever.

Gav

Many thanks Julian, that's very helpful. I'll try the BACS method next time. Darn nuisance the Switch Card method doesn't work though. Apart from ATMs, that's about the only thing I would like to use it for. (Using my Sainsbury Visa for as much as possible helps with the grocery bills!)

Much appreciated your post.

Many thanks Julian, that's very helpful. I'll try the BACS method next time. Darn nuisance the Switch Card method doesn't work though. Apart from ATMs, that's about the only thing I would like to use it for. (Using my Sainsbury Visa for as much as possible helps with the grocery bills!)

Much appreciated your post.

Indubitably.

What, can you really remember back 7 years, at your age? I think it was much more recent. More like 7 months.