The Financial Blog

I thought I’d start off with some good news for a change, something more charitable - a bank giving money to charity, well done Tesco Personal Finance!

From today until 28th of February 2009 all Tesco will be donating to the Marie Curie Cancer Care charity every time a customer uses a Tesco cash machine.

The new promotion from Tesco Personal Finance is expected to raise in the region of £33,000 for Marie Curie Cancer Care, which is fantastic!

Tesco Personal Finance Operations Director, Duncan McKinnell said: “Every time customers withdraw cash, check their balance, request a statement or even simply top up their mobile, we will be making a donation to Marie Curie Cancer Care.”

‘Through this promotion we’re hoping to fund over 1,500 extra hours of nursing care, at home, for people with terminal illnesses throughout the UK. So by simply doing something ordinary, like using a cash machine at Tesco the next time they go shopping, customers can help in providing extraordinary care’.

Marie Curie Cancer Care is the Tesco charity of the year and throughout the rest of 2008 Tesco staff and customers will be working towards raising £2.5 million which equates to 125,000 additional hours care for terminally ill patients in the UK.

For more information about the Tesco Charity of the Year go to www.mariecurie.org.uk/tesco

New research from Moneyexpert.com reveals that 2 out 5 current accounts still pay less than 1 per cent interest when you’re in credit. In the current economic climate with savings accounts offering 6 per cent and more this just isn’t good enough.

According to Moneyexpert.com the latest average interest rate on a current account is just shy of 2 per cent compared to an average of 1.6 per cent 12 months ago. Moneyexpert say that the banks should be doing more to reward customers who stay in credit and that too many current account providers just don’t offer competitive interest rates for their customers. This is something I definately agree with; how can savings and fixed rate bond fixed rate bond accounts be attracting customers in with 6 to 8 per cent headline rates but at the same time paying out absolute peanuts in current account interest? Lets face it the majority of people over the next year or so will not be able to afford to save any additional money. The credit crunch is really kicking in and inflation is set to be at it’s peak.

Director of MoneyExpert.com, Sean Gardner, said: “It’s encouraging to see banks getting their houses in order and offering better interest rates for customers with positive balances.”

“But let’s be honest - almost half of all accounts reward customers who are in the black with less than one per cent annual interest. That’s an appalling return. Given there are accounts out there offering ten times that amount of interest, customers should not settle for a raw deal.”

“3.57 per cent is a healthy average for accounts paying above one per cent, so every customer should aim to find an account with a similar or higher rate of interest.

“This is of course not forgetting the importance of customer service and other perks - we wouldn’t necessarily recommend buying purely on price for your current account as it’s not just the account but the bank that you’re buying into. You need to be sure it’s the right place for your money.”

So go for an account with 3.57 per cent or more on offer, but make sure you satisfied with the customer service before you switch! I chose the bank I’m with because I know their online banking is second to none; therefore I knew I could do all the banking I needed without having to ever go near a branch! And this for me makes for a good relationship with my bank! That coupled with the fact I don’t have to speak to their call centre…

>>Click here to compare current accounts and apply online today

Emma Walkley, Current Account Manager at Alliance & Leicester comments:

“The penny seems to have finally dropped. This rate increase for Lloyds TSB Plus current account customers is a sign that at least one of the Big Banks is starting to recognise the importance of giving something back to customers.

“Alliance & Leicester has led the way on this for years, consistently being recognised as the best current account provider in the market with our award winning Premier Direct Account, and we have always championed the benefits of ditching your out-of-date account and switching.

“When looking around for a better current account, customers need to consider the whole deal before signing up. While Lloyds TSB’s Plus account rate is an improvement on their previous offer, it is still significantly lower than our Premier Direct account at 8.5% AER.

“What’s more the minimum funding requirement of £1,000 is double that of Premier Direct at just £500 per month - the lowest funding of any account paying credit interest over 0.10% AER

I think the Alliance and Leicester Premier Direct current account is a market leader but click here to compare current account rates and apply online today!

Lloyds TSB has increased the interest rate on it’s Plus current account from 4 per cent to 6 per cent variable.

This is actually a 2 per cent ‘bonus’ offer, so you get 2 per cent extra for 12 months and the offer is running from 9th June to 13th July 2008. I suppose my only issue with these kind of offers is that the bank is relying on customers not to bother changing accounts after the offer period ends. To be honest who would go through the effort of changing their current account every 12 months? It’s just not viable.

Having said that 4 per cent isn’t a bad rate, it’s just that there are current accounts offering up to 8 per cent at the moment, infact the Alliance and Leicester Premier Direct Current Account offers 8.5 per cent on a minimum balance of just £1.

After the 12 month bonus period ends the interest rate reverts to 4 per cent AER and there are other benefits to take into account. You can opt ofr ‘Plus’ on several Lloyds TSB accounts including Classic which has no fee. Other benefits available on the Gold, Platinum and Premier added value current accounts are AA breakdown cover, travel insurance and mobile phone insurance, however there is a monthly fee for these accounts.

Director of current accounts, Catherine McGrath, Lloyds TSB said: “While many of our competitors are cutting the interest they pay to customers on their current accounts, we’re bucking the trend offering one of the best deals on the market. By upping the interest we pay on our Plus accounts everyone will be able to make the most of their current account balance.”

If you’re interested in switching to a Lloyds TSB current account they have a switching team in place who arrange the transfer of all direct debits and standing orders, they also contact employers to set up the transfer of funds into your new Lloyds TSB account.

For further information visit Lloydstsb.com or call 0845 3000 000

>>Click here to compare current accounts and make sure you get the best rates on offer!

The Monetary Policy Committee today voted to keep the Bank Rate on hold at 5.0 per cent.  I’ve collated all the latest comments from industry experts below;

Comment from Barry Naisbitt, Abbey Chief Economist on base rate decision;

“The Bank of England held rates at 5 per cent today. Market commentators had expected no change this month after the almost unanimous decision to hold rates last month and the warnings about higher inflation in the months to come. The Monetary Policy Committee (MPC) has clearly signaled its concern that higher inflation may feed through into elevated inflation expectations. Consumer price inflation rose from 2.5 per cent to 3 per cent in April. With increasing signs of slowing output growth, the majority of MPC members must have judged that the most recent evidence of slowing economic activity needed to be balanced against both their expectation that activity would slow and that inflation indicators are high and expected to rise further.

“The MPC Minutes, which are published later this month, should give some more information on how the MPC members judged the risks in what is a highly uncertain economic situation. If the slowing in economic activity is viewed as supporting lower inflation in the medium term, a further rate cut could still be on the cards later this year, although much will depend on how inflation develops in the coming months.”

Commenting on today’s MPC interest rate decision, Henk Potts, Equity Strategist at Barclays Stockbrokers said:

“The MPC finds itself in the middle of a difficult balancing act, involving rising inflation on one side and slowing economic growth on the other.

“There is no doubt that UK economic growth is moderating - the credit crunch has reduced the availability of credit, the housing market is slowing down and the high street is showing signs of softening. Real incomes are also being squeezed by high inflation, which has the potential to further reduce household demand. Meanwhile, inflation is way above target and set to go even higher in the coming months.

“However, as you look into 2009, slowing economic growth should reduce capacity pressures and thus inflation, and therefore there is still the possibility the MPC could cut interest rates later on in the year.”

It was no surprise that the MPC decided to hold rates at 5% today according to the Council of Mortgage Lenders. CML director general, Michael Coogan commented:

“We expected the MPC to hold rates today as it wrestles to control rising inflation in a weaker economic outlook.

“But clearly there are still affordability pressures on borrowers and a widespread funding shortage for lenders. We hope that as the effects of the Bank of England’s liquidity scheme feed through the financial system there will be some benefits for mortgage lenders, and in turn borrowers, later in the year.”

Trevor Williams, chief economist, Lloyds TSB Corporate Markets said:

“The Bank of England’s decision to hold rates this month was widely expected, given the need to deal with the problem of rising inflation. Of course, the credit crisis is still a clear and present danger to economic growth, which suggests that rates should be cut, but inflation is now causing real concern, both in the UK and around the world.

“The worry is that worsening inflation figures in the months ahead could push inflation expectations up even further, making a rise in actual inflation a self fulfilling prophecy. Cutting base rates in this environment is not a realistic option. So the MPC was right not to move.”

The case management conference has predictably resulted in the banks being given leave to appeal against the recent High Court judgement.

The banks are appealing against the original ruling that unauthorised overdraft charges are assessable for fairness.

David Black, Principal Consultant of Banking for Defaqto says: “The stakes for both sides are extremely high so this has all the hallmarks of being a very lengthy judicial process. Next step is the Court of Appeal and after that the House of Lords and maybe even Europe.”

“If the original judgement is ultimately upheld and a substantive hearing rules that the charges are unfairly high the most likely outcome is that a cap will be placed on the charges but, crucially, the banks will still be entitled to make an element of profit in the fees charged.”

“Whilst it will clearly depend on the level of cap enforced it will almost certainly result in the current account landscape being changed significantly as the banks seek to make up any lost revenue in other ways. Limited facility basic bank accounts, which do not have overdraft facilities, will almost certainly remain free but it looks increasingly likely that charges will eventually be introduced for full service current account customers. These may take the form of either pay per transaction or a flat fee with or without discounts for taking other products from the bank or maintaining a specified minimum balance.”

“Short term I also expect to see more aggressive marketing of added value accounts.”

I didn’t realise this but Moneyexpert.com has obviously looked at the small print when it comes to current accounts. They say that high interest current accounts pay, on average, just 0.58 per cent for amounts over £2,500.

The high interest current account is a fairly new phenomenon, I’m sure you’ve seen the Halifax adverts which say ‘50 times more interest than Barclays, HSBC‘? Infact the main home page of the halifax.co.uk web site is advertising this right now.

Well, Moneyexpert.com say that only one of these current accounts maintains the headline interest rate above a £2,500 balance, which is Coventry’s First Account, offering 6 per cent, up to a maximum of £250,000.

If you have an Alliance and Leicester Premier Direct Account offering 8.18 per cent, an HSBC Bank Account Plus offering 7.72 per cent, or a Halifax High Interest Current Account offering 6 per cent, then I’m afraid that once your balance is around £2,000 or more then these headline high interest rates will not apply.

Moneyexpert.com say that there are a few other bank accounts paying a consistently high rate of interest, these are; Cahoot paying 3.65 per cent up to £249,999, and Yorkshire Bank’s Current Account Tracker paying 4 per cent (But this is only available to customers with an income of £75,000 or more - so that rules out the average person!).

Founder of MoneyExpert.com, Sean Gardner, said: “High interest accounts are a great addition to the market particularly for those with modest balances looking to make their cash work harder.”

“But customers need to remember that the tempting high rates are only effective for sums up to a point, normally around £2,500. If you’re keeping any more than that in your current account then you should look elsewhere. ”

“Apart from the potential exception of the Coventry, cahoot and Yorkshire accounts those looking for a substantial return on their cash are likely to be better off investing surplus funds in an ISA or savings account rather than letting it sit gathering dust”.

>>Click here to compare ISAs

>>Click here to compare savings accounts and find the best long term rates

Following in the footsteps of the Royal Bank of Scotland and HBOS, Bradford and Bingley are the latest UK bank to go to it’s shareholders for additonal funding. The planned £300 million rights issue will offer existing investors the chance to buy more shares.

Shareholders will be offered 16 new shares for every 25 they already own and the price will be 48 per cent below yesterday’s closing price. It is standard practice for a company to offer shareholders new shares at a discounted price and they are offered in proportionary amounts. For example, if you own 5 per cent of the existing shares you will be offered 5 per cent of the new ones.

Bradford and Bingley had previously denied, only last month, that it was planning to raise additional finds from shareholders.

Because Bradford and Bingley are Britian’s largest buy-to-let mortgage lender and it funded a large proportion of these mortgages from the money markets, it’s share price has fallen this year and Bradford and Bingley say the rights issue will bolster “Our position as one of the better capitalised banks in the UK.”

>>Click here to compare mortgages and find the best deals

The Bank of England’s Monetary Policy Committee has decided to keep interest rates at 5 per cent this month following 3 rate cuts over the last 6 months.

Industry experts had predicted the rate hold but it surely is becomming harder for the Bank of England to make these rate setting decisions.

Rising inflation means that food prices and fuel prices are rising and the Governmnets target for inflation, which is set at 2 per cent, is not being hit by the Bank of England. The pound is not performing well against the Euro and that means goods and services we import from Europe cost us more. Just these reasons would normally be enough for the Bank of England to increase interest rates.

The problem is the slump in the UK housing market and mortgage mayhem following the credit crunch; this means that the Bank of England is also under pressure to consider the economics here as well as rising inflation.

In the US interest rates have been cut to an all time low of 2 per cent to try and recharge the slowing economy and housing market.

Obviously for everyone with a fixed rate mortgage it really makes no difference what the Bank of England do with interest rates until your out of the fixed rate period.

I’m one of the ‘lucky’ people who can choose to ignore interest rates at the moment and as long as I can afford to continue paying my mortgage there should, fingers crossed, be nothing to worry about. I’m also lucky enough to have almost 40 per cent equity in the property I’ve mortgaged. In theory I should be able to let the ecomony do what it’s going to do over the next 2 or 3 years.

The people with tracker or base rate mortgages will continue with the same monthly payments, the issue for these people may come if and when interest rates begin to rise.

No-one really knows how far house prices will fall either. There are statements like ‘house prices are at there lowest since 1992′ and so on, however all this really means is that house prices have not continued to increase at the dramatic levels we’ve been used to for the last 5 years or so. Over the last year house prices have slowed or even fallen but over the last 10 years house prices continue to rise.

If you have savings then you should make the most of these times, interest rates on savings accounts are available up to 7 per cent. Get saving and clear your debts should be the message for everyone!

Click here to compare savings accounts and get the highest interest rates

In the test case against UK bank overdraft charges, it was ruled that the OFT (Office of Fair Trading) can decide if bank overdraft charges are unfair or not and this means it’s up to the OFT to decide what is a fair overdraft charge.

The banks have said “Further court hearings will be required before the test case process is concluded.” Even if the OFT win and we can all claim back our overdraft charges you can bet that the banks will then begin charging us to use a current account, meaning the end of free banking for everyone.

This stemmed from the consumer anger with bank charges, sometimes running into hundreds of pounds, for unauthorised overdrafts. Back in 2006 the thinking was that these charges were, in-fact, illegal because they must be reflective of the actual costs incurred by the bank, i.e. the charges must be reasonable. Also, the credit card industry had seen an amendment to credit card fees, backed up by the OFT (Office of Fair Trading) - So the question was asked ‘why should banks get away with the same thing on overdraft charges?’

Whatever happens with this court case it looks like we’ll all end up paying out in the long run as the banks will turn this ruling on it’s head and introduce new fees that we have to pay upfront. Wonderful.

The banks will always look beyond the regulations imposed on them in order to skim more profits from their customers. It’s just a shame that we all have to use current accounts these days in order to get paid and get credit. If there was some other way of holding your own, hard earned, money without allowing profiteering banks to get their hands on it, I’m sure millions of people would move away from banks…

Get them while you can! Click here to compare current accounts and find the best account