Money news, advice and predictions for savers and spenders.
By Jeremy Gates
If this week's news from the major high street banks of £8 billion in profits and bumper bonuses for staff was too much for you to bear, barely two years since the banks almost sank the global economy with reckless lending, you can always take your business elsewhere.
Metro Bank became the first high street bank to launch in Britain in more than 100 years when it opened a branch in Holborn, central London, last week.
"The banking revolution begins!", it proclaimed. Other potential newcomers, including Virgin Money and Tesco, wait in the wings, possibly getting ready to capitalise on huge customer dissatisfaction with the established banks.
The Financial Services Authority (FSA) says complaints to banks soared to 2.65 million in the first half of 2009. Some 54 million current accounts are held with the big banks.
A second Metro branch follows in Cromwell Road, Earls Court, next month, followed by Fulham Broadway and Borehamwood, Hertfordshire, in the autumn. Within a decade, there could be 200-plus Metro branches within the M25, reaching into Kent and Hertfordshire.
Metro launched with balloons and an invitation to "come and join the fun". With weekday opening hours of 8am to 8pm, it promises to put customer convenience first and is keen to emphasise a level of customer service which its much bigger rivals forgot about decades ago.
Free coin counting is available in every store, for customers and non-customers alike, with the Metro Bank Magic Money Machine. Trading hours are 8am to 6pm on Saturdays and 11am to 4pm on Sundays.
"We will deliver a service that exceeds expectations with the customer at the heart of everything we do", says the new bank.
Metro offers biscuits to dogs who accompany owners when they visit a branch. New customers must visit the branch to open a current account, but their cheque book and debit card is ready within 15 minutes, compared with the week or so that the big banks often require.
Over-50s who open a Metro current account get a free safe deposit box for the first year.
Metro is the brainchild of co-founders Anthony Thomson and Vernon Hill, a US businessman and dog lover who opened America's Commerce Bank in 1973 and sold it for $8 billion in 2007.
A problem for any newcomer to the banking sector is that most of us choose a bank for convenience, as much as anything else, so can Metro, with a handful of branches, prevail against established rivals with more than 9,000 high street premises around the country?
When they initially examined the range of products available at Metro, the experts didn't sound too impressed.
Kevin Mountford, head of banking at finance website Moneysupermarket.com, said: "It is difficult to see where Metro Bank will distinguish itself from its competitors."
"Longer opening hours, safety deposit boxes, debt and credit cards and new cheque books printed in store, and water and biscuits for dogs are all positive factors to help customers, but all that glitters is not gold."
"Service is important but customers will need to ensure that they are getting the best deals available and the right products for their needs, rather than being fooled by the sparkling new shopfront and traditional banking approach."
"There is already a great deal of competition in the UK banking market and consumers should take this opportunity of a new entrant to reassess their financial products and ensure they aren't missing out on a better offering."
Andrew Hagger at Moneynet.co.uk sees both the good and the mediocre in Metro's initial range of products.
"Longer opening hours, dog biscuits and bright shiny premises are certainly big differentiators", he says, "and they will initially seem like a breath of fresh air when compared to established competition."
"However, Metro rates are not very good on mortgages and savings."
"Two-year fixes start at 4%, but if you want a higher loan-to-value (LTV) than 60%, you must pay an extra 1%."
"That's 5%, against 2.99% in the rest of the market."
"On savings, Metro's one-year fix at 2.5% is way behind ICICI at 3.1% and three years at 3%, against 4%-plus at ICICI and AA Savings."
However, Hagger applauds Metro's personal loans at 10% - on any amount - because lenders often charge much more on smaller loans of £2,000 to £3,000 which are what many customers actually need.
He also thinks the credit card - at 13% APR for everybody - will have strong appeal because of its 'fairness'.
The market average among rival providers is 18.5%.
Metro might also score further points for 'fairness' with its standard rate of 15% on overdrafts, both authorised and unauthorised.
Hagger thinks Metro will have to be particularly careful to ensure its loans don't go badly wrong.
"A cautious approach to mortgage lending with a maximum LTV of 80% available makes you wonder if Metro won't be equally cautious with unsecured lending too and may operate a stringent credit scoring policy as it won't want bad debts when lending at below market rates on credit cards and personal loans", he says.
But the packaged current account, costing £12.50 per month - at the lower end of fees for packaged account - has some interesting 'bells and whistles'.
It includes worldwide family travel insurance with wintersports and golf cover; mobile phone insurance for up to two phones or smartphones; RAC roadside breakdown service, card protection and identity theft support and (for London customers only) a service which promises to get a spare set of house or car keys to customers within two hours of the loss being reported.
Metro's Anthony Thomson says: "We may not offer the highest savings rate on the high street or the lowest rates on our credit card, but we aim to offer rates that are fair and consistent."
"There won't be any difference between the rates offered to those who want to buy online and those who would rather visit a branch."
Obviously a key factor in Metro's success is the real level of dissatisfaction which customers have with existing banks.
We have been pretty lethargic about switching accounts, but bank profits and their generously-paid staff could arouse greater hostility if swingeing Government spending cuts cause a surge in unemployment in the next 18 months.
It may be significant that rival banks are already sharpening up their positions in response to Metro.
Nationwide BS has announced plans to slash overdraft charges and offer free travel insurance - although that is partly intended to deflect criticism of its decision to abandon the policy of allowing free debit card transactions abroad to FlexAccount customers in November.
Bizarrely, Leeds BS has unveiled a London Instant Access Account, paying 2.55% on minimum £100 deposits, maybe to stymie Metro's instant savings account paying 0.5%.
This offer is only for customers at the Leeds BS branch in Kingsway - around the corner from Metro!
Is Tesco Clubcard's decision to extend its 0% period on purchases to 13 months, (ahead of Virgin Money and Sainsbury's Finance, both 12 months) a pre-emptive strike?
Credit card customers can earn Clubcard points when using the card for purchases at any outlet and benefit from additional points when shopping at Tesco.
Hagger says: "The idea of Tesco opening bank branches in corners of its stores might be a cost effective way forward. Interesting events could develop in 2011."
:: Information: Metro Bank (0345 080 8500 and www.metrobankonline.co.uk).
Poundnotes
:: AS HSBC launches its lowest ever five-year fixed-rate mortgage, it is claiming that most borrowers would do better if they approach lenders direct, instead of asking brokers to research the market on their behalf.
HSBC doesn't use brokers, and its new five-year deal is fixed at 3.95%, with an LTV limit of 60% and fee of £599.
HSBC's new range also includes a market-leading tracker at 1.69% above Bank base rate (currently 2.19%), with a booking fee of only £99. But this tracker is only available until August 15, for applicants with at least 40% equity in their home.
However, HSBC cites an analysis by Moneyfacts.co.uk which says that of 96 mortgage deals which held the position of lowest rate in the market at some point over the last two years, only on six occasions could brokers beat the best loan offered by direct lenders.
At the height of the property cycle in 2007, brokers were selling as many as seven in 10 of all mortgages arranged.
:: Renewed competition in the credit card market means the length of interest-free promotional periods offered by card providers on balance transfer and purchase credit cards has hit record highs, says Moneysupermarket.com.
But the snag is that rates are continuing to rise, now averaging 17.32%.
For best value balance transfers, the market leaders are Platinum Credit Cards from NatWest and Royal Bank of Scotland, with 16-month 0% offers on balance transfers and a 2.9% transfer fee.
For people looking for a card for purchases, the average period for 0% purchase cards has risen to an average 12.2 months, against 10.8 months in July 2007. Tesco's Clubcard credit card is a market leader at 13 months.
Kevin Mountford at Moneysupermarket.com says: "The sting in the tail is that while interest free periods get longer, rates of interest charged once they end are also increasing."
:: Around 14 million Britons will be holidaying in the Eurozone this summer spending an average of £702 each in shops, bars and restaurants but excluding the cost of accommodation, car hire and flights.
According to leading foreign exchange provider Currencies.co.uk, the strengthening of the pound in recent months will give British travellers an extra 56 euros to spend during their holiday.
Stephen Hughes, director at Currencies.co.uk, says: "Brits holidaying in Europe should feel better after the painful experiences of 20009. But their gains could be wiped out if holidaymakers don't shop around for the best deals on exchange rates and commission."
Enquiries: 0800 328 5884 and www.currencies.co.uk.
:: Although 'Black Horse' bank Lloyds has announced pre-tax profits of £1.6 billion for the first half of 2010, small shareholders - many locked in by the plunge in Lloyds' share price after its disastrous acquisition of Halifax Bank of Scotland (HBOS) - can scarcely afford to celebrate, says Graham Spooner, investment advisor at The Share Centre.
"Lloyds Banking Group has come a long way after a couple of bad years, and although the bank offers growth potential it remains a high risk investment", says Spooner.
"Barclays, which didn't afford a taxpayer's rescue, remains our bank of choice for investors looking for growth and improving income within the banking sector."
Barclays, of course, still pays dividends. Lloyds, alas, can't do the same until 2012 at the earliest.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
ICICI Bank www.hisave.co.uk 4.75%% (F) HiSAVE Fixed Rate Five Year Bond £1,000 Yly
Aldermore 0845 604 2678 4.56% (F) Fixed Rate Account Five Year Bond £1,000 Yly
Close Savings 0207 392 1772 3.15% Premium Gold 180 Day 180 days (B) £10,000 Qly
Stroud & Swindon BS 08457 252423 2.90% 90 Day Notice 90 Days £1,000 Yly
AA www.theAA.com 2.80% Internet Extra 3 None £1 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 2.19% disc for term 70% £599 Yes
First Direct 0845 610 0100 2.49% variable for term 65% £95 Yes
ING Direct (UK) 0845 603 8888 2.60% (rem) discounted to 31/08/12 70% None Yes
Yorkshire BS 0845 120 0874 2.99% (F) to 31/09/12 75% £995 Yes
Hinckley & Rugby BS 0800 774 499 3.49% disc for term 80% £795 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
