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MORI Research On Bank Spreads

So how much is your bank charging you?

A simple enough question, but even the lady running Lloyd’s retail banking in the UK couldn’t tell the Treasury Select Committee how much she was being charged for her own Lloyds current account. It made uncomfortable yet compelling viewing, as a quick look at this footage will confirm (fast forward to 9:56:25)

The Treasury Select Committee’s view is that unless you can tell what you are paying for your banking, how can there be any real price competition between banks? It’s a very good point.

Competition in the banking sector was one of the key issues that the Independent Commission on Banking (ICB), chaired by Lord Vickers, was asked to look at by the Government. Its final report was published earlier this week, but almost all of the noise afterwards was about whether or not banks in Britain should have their everyday retail operations “ring-fenced” from their so-called ‘casino’ banking where all the big and dangerous risks are taken. Vickers says yes, most banks say no.

The Government has come out in favour of Vickers’ recommendations and said it will pass new laws to put them into action, BUT after further consultation – and not before 2019. Not exactly next week, and with years for the banks’ lobbyists to try to dampen Mr Osborne’s apparent enthusiasm for change.

Zopa made its own contribution to these debates recently by commissioning the independent research company Ipsos MORI to find out how well the public understands or even just knows about ‘Bank Spreads’- the difference between what banks pay in interest on your savings, versus what they charge you to borrow. The typical bank currently inflicts a spread of 11%, paying around 1% on savings, but charging around 12% for a personal loan (source: Moneyfacts)

Here are Ipsos MORI’s findings:

  1. 93% of consumers do not know what a Bank Spread is.

  2. Of those that say they do know, less than half actually do.

  3. When told that a typical Bank Spread is currently 11% (source: Moneyfacts, between savings account interest rates and rates charged for personal loans), a total of 58% of people think that is too high (38% think it is far too high).

  4. 41% of people disagreed with the statement “Banks are commercial organisations which need to make money so I am comfortable with them doing so in this way”.

  5. 80% of people agree that “Banks should state clearly what their current spread between their typical personal loan and typical savings rate is, for example in branches and online”.

  6. 73% of people think “the Government and regulators should put rules in place that control the size of spread that a bank is allowed to apply.”

Giles Andrews (cofounder and CEO of Zopa) said “The difference in rates obtained by lenders and borrowers is, clearly, fundamental to the banking industry because that is where their profit lies. But this research reflects public concern that the traditional lending institutions are ripping their customers off and keeping their customers in the dark about the process and the extent of the rip off.”

“It does not have to be this way. We at Zopa have shown that peer to peer lending, conducted in a transparent manner, works better for everyone. Borrowers can get access to much lower rates, individual lenders can secure returns greatly in excess of savings accounts and Zopa can take its low charges, all within the spread, leaving everyone much better off than if they had gone to a bank. It is just rather tragic that more people don’t even know about bank spreads and the measure they provide of just how much the banks are taking from them and their fellow customers.”

I couldn’t agree more. What do you think?