Banks pay for lack of loyalty

The big banks – like top football clubs – have millions of customers.

Like the clubs, the banks are revered by some and reviled by others. But while ticket prices and players wages often anger football fans they seldom switch their allegiance. The clubs, by and large, can take their loyalty for granted.

You wouldn’t think the big banks could afford to do that as many of us see them as little more than necessary evils. But they do. It was this contempt for customers in part that led to the furore over current account penalty charges.

And there is more evidence of it following last week’s quarter point cut in interest rates.

This should have been good news for homebuyers feeling squeezed by previous rate rises and soaring fuel bills. In particular, it should have offered hope to more than a million nearing the end of cheap fixed-rate loans. Instead lenders have seized the chance to fatten their profit margins.

Sure they cut their standard variable rates but these were expensive to start with and only for the foolish or lazy. Customers on more attractive discounted or tracker deals must wait until next month for bills to fall even though the banks are already benefitting from lower rates themselves.

But the biggest money-making wheeze has been changes to new fixed-rate and tracker deals. This time last year, when the base rate was also 5.25%, the best two-year trackers were around 0.25% below that. Today, the most competitive is the Co-op at just 0.01% below.

Many lenders scrapped competitive offers ahead of last week’s cut. They’ve also been quietly pushing up arrangement fees, adding to the overall cost of deals. Halifax, for example was offering a two-year tracker at 5.54% a year ago with a £399 fee. Today, its best rate is 5.89% with a £999 fee. It means someone with a typical £120,000 loan will pay £1,500 extra over two years.

The Halifax is not alone. The banks blame the worldwide credit crunch which has made it more difficult and expensive for them to borrow. There’s some truth in that but it will cut little ice with customers once the banks reveal more jaw-dropping profits later this month. Perhaps the banks should learn some lessons from the supermarkets. They recognised the value of customer loyalty long ago.

After Tesco launched its Clubcard in 1995, others quickly followed, spending millions advertising and managing the schemes as well as funding the discounts. The big banks have failed to foster such loyalty despite having more to gain. On average people only move house every seven years. If lenders rewarded loyalty people would be far less likely to move their mortgage at other times. After all it’s a far bigger decision than just turning left to Tesco or right to Sainsbury’s.

Instead the banks spend fortunes on glossy TV ads designed to win new customers. HSBC appeared to be bucking that trend last week by launching its Rate Matcher initiative. It offered customers near the end of fixed-rate deals the chance to extend them for up to five years for a fee of around £500.

While this could be seen as a positive – designed to benefit/hold on to existing customers – the scheme is flawed and feeble. HSBC has rarely, if ever, offered the best fixed-rate deals so these customers have probably been paying over the odds for the past two or three years. They’re being fleeced again by fees that seem excessive for merely extending an existing agreement. What’s more, with interest rates falling, they could almost certainly find a better deal elsewhere if they take the time to hunt for it.

By CLINTON MANNING

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