As banks promise more transparency, this article reveals that most of them still offer abysmal value

The tricks your bank likes to pull on you 

LAST WEEK, the high-street banks performed a U-turn and announced that they would not be charging cashpoint fees from next January. 

The move, which will save the average consumer hundreds of pounds, was heralded as the latest "customer friendly" initiative from the big four banks - Barclays, HSBC, Lloyds TSB and NatWest. 

In the past few weeks, HSBC has cut its standard variable mortgage rate by one percentage point from 7.74% to 6.74% and has slashed the cost of its pensions. NatWest has abolished its £5 monthly overdraft fee. Experts claim that this is the beginning of a "price war".

Bill Dalton, chief executive of HSBC, says: "We have promised customers straightforward, transparent banking services at fair prices. We are determined not to obscure the good things we do." 

The banks have been spurred into action after they started losing customers in droves to cheaper internet and telephone-based competitors. This exodus is likely to increase sharply after the launch this week of Halifax's IF, which automatically links people's borrowings and savings. 

The Consumers' Association says: "We are happy to see people voting with their feet and moving banks. However, the products and services offered by the big four banks still leave a lot to be desired. They just don't seem to care about their customers." 

A report published last week by the Banking Code Standards Board, the industry watchdog, revealed that levels of customer service are "unacceptably low". 

Despite the public-relations exercise, banks still appear to be loth to change their attitudes. A memorandum from the chief executive of Barclays to senior managers, seen by The Sunday Times, says that they must consider profits and shareholders first when making any decisions. 

Here are 10 unfair practices and uncompetitive products still commonplace among the big high-street banks. 

Cheque clearing 

When you pay in a cheque it typically takes up to five working days before the money is available to be withdrawn from your account. 

During this time you do not earn interest on your money. This is despite the fact that modern banking technology allows money to be transferred electronically around the world at the touch of a button. 

Therefore, banks make millions of pounds in interest by holding on to customers' money for up to five extra days. 

Overdraft fees 

Customers pay almost £300m a year in overdraft fees. Lloyds TSB and Barclays both charge £5 a month for overdrafts on top of the sky-high overdraft rate of almost 19%. 

When people borrow on a credit card, loan or mortgage, the rate of interest quoted must legally include compulsory fees. However, overdrafts are excluded from the rules and the banks are exploiting the loophole. 

The effect of the fees is dramatic. Someone with a typical £1,000 overdraft pays interest of almost 18.8% at Lloyds TSB or Barclays. However, compulsory fees mean the true interest rate is about 22%. 

Barclays defended the fees in a written statement. It says: "We believe the charges on our overdraft service are priced competitively." 

Lloyds, however, said it was reviewing its fees. 

Penalties 

If you overstep your authorised overdraft limit, high-street banks will hit you with a wide range of fees and usurious rates of interest. 

Furthermore, the banking watchdog discovered in its mystery shopping exercise that a fifth of customers were not even told about the costs. 

At Barclays you will be charged interest at 29.8% and incur a £20 per month charge for an unauthorised overdraft. Therefore, you could face an interest bill of 50% or more. 

At Lloyds TSB, customers are charged £10 a day every time their unauthorised overdraft increases by £10 or more. HSBC and NatWest also levy similar fees. 

All the banks charge between £25 and £28 if a customer bounces a cheque or direct debit. 

In America, banks take a less draconian approach. They obviously know when your salary is being paid into the account - and therefore whether you can pay off the debts. So the banks negotiate with customers on an individual basis and most people are given leeway of a few days or weeks. Individual customer service is still foreign to British banks. 

Savings accounts 

The rates paid to savers by the high-street banks are often abysmal. For example, Barclays pays easy-access savers 4.25% gross, HSBC pays 3.6% and NatWest pays 5.1%. But, elsewhere, the best accounts pay substantially more interest. This pattern is repeated for notice accounts. NatWest's 90-day account pays 2.7% - compared with 7% at Northern Rock and 6.75% at Scarborough building society. 

NatWest's 30 and 90-day accounts both pay an identical rate of interest for balances of £5,000. 

Barclays' 30-day account pays 3% - compared with 6.75% at Bristol & West. The special deals have introductory rates, but once these expire, the rates are still much better. 

Credit cards 

Credit cards offered by the big four banks are among the most expensive. All charge interest that is at least three times the Bank of England base rate. 

There is also seemingly a lack of competition on the high street. Barclaycard, the country's most popular card, charges 19.4%, HSBC 18.9%, Lloyds TSB 19.9% and NatWest 19.4%. 

This is in stark contrast to the best deals. Northern Rock charges 10.5% and Egg 10.9% - almost half the cost. 

Mortgages 

According to mortgage experts, taking a home loan from a high-street bank is usually a costly mistake. For example, Barclays charges 7.19% for a five-year fixed deal and 7.74% for a standard variable rate loan. 

But Cheshire building society offers a fee-free fix of 6.45% and Egg offers a variable mortgage at 6.69%. Therefore, a borrower with a £100,000 mortgage would be £740 a year better off with Cheshire. 

Patrick Bunton of London & Country Mortgages says: "We virtually never recommend mortgages from high-street banks. In fact, I do not think we have ever sold a Barclays or HSBC loan." 

Some banks are beginning to improve, however. HSBC now offers one of the most competitive variable deals. Cheltenham & Gloucester (C&G), part of Lloyds TSB, is competitive on some loans, although it is one of the few lenders to persist with extended lock-in penalties, which force people to pay the standard variable rate at the end of a special deal. 

Current accounts 

Banks hit customers whether they are in the red or the black. When you are in credit, all the high-street banks pay just 0.1% interest. However, go overdrawn and you are typically charged at least three times the base rate. Such profit margins are almost unheard of for other products or services. 

The banks may also levy a range of "hidden fees" for services such as a banker's reference or banker's draft. They may even charge you to move your account elsewhere. 

Far better current-account deals are available. The scrapping of the plan to bring in cashpoint fees also means that banking elsewhere is now a viable and hassle-free proposition. 

Interest traps 

If you have a repayment mortgage from Barclays, Lloyds TSB or NatWest, the interest you owe is calculated annually. This means that the capital you repay is not deducted each month from what you owe, so effectively the following month you pay interest on money that you have already repaid. 

This costs a homeowner with a £100,000 mortgage about £110 extra in interest a year, or more than £2,847 over 25 years. 

However, interest on savings accounts is calculated daily to ensure that the banks do not pay out for money that you have withdrawn. 

Packages 

Hundreds of thousands of people have been persuaded to sign up for so-called "packaged accounts". 

For a fee of between £6 and £8 a month you get a range of perks, including free travel insurance and special deals on everything from investments to holidays. You also get lower overdraft rates - although the savings are often wiped out by the monthly fee. 

Therefore, according to experts, these perks are usually only worth "a few pounds a year". The accounts include Barclays Additions, Lloyds Gold Service and NatWest Advantage. However, a recent survey by the Consumers' Association found that most of these accounts are expensive gimmicks. 

Helen Parker, editor of Which, says: "These new accounts are really a disguise for bringing back banking fees. The banks are sugaring the pill by offering perks and benefits, the value of which is fairly dubious to most consumers. Unless you really need the benefits on offer, don't let your bank fool you." 

The only people who may benefit from packaged accounts are those who travel abroad frequently. 

Foreign exchange 

When you go abroad and withdraw money using a debit or credit card, your bank usually "loads" the exchange rate and levies a disloyalty fee. This means you could end up paying a fee of more than 3% of the money you are withdrawing. 

The bank may also charge you a fee to change money or buy traveller's cheques before going abroad. 

Sunday Times 9 July 2000