Lloyds Bank to pay interest on money in transfer

[Zoe]

Lloyds TSB is to pay interest on customers' money while it is being transferred to another account from the New Year. Transfers will still take an age to undertake.

[Henry]

At what rate ? 0.1% p.a. ?

Or on their higher interest account too ?

Originally posted by Henry
At what rate ? 0.1% p.a. ?

Or on their higher interest account too ?

Both. Mentioned on Moneybox yesterday.

[Zoe]

Yes, that was where I heard it. It is an odd priority - to pay the interest but retain the delay in clearing the funds.

In many ways I am not anti "no interest" as this is obviously an area where the banks make a turn at an appreciable amount to themselves, but at a matter of coppers to their customers.

I would prefer that they did this than introduced charges for handling personal cheques ,which seems to be the alternative if clearing is speeded up and interest is paid but the banks are to retain their profit margins.

[MarkyMarkD]

Paying the interest is something they can do themselves, as a marketing differentiator.

Sorting the payment delay requires industry-wide action and there's no great appetite for doing that.

I really can't see why people get so bothered about a 2 working day delay in transferring money, which is all the clearing system causes. Any delays over 2 working days are the fault of individual banks, not the clearing system.

They could have virtually instantaneous transfer of money between bank accounts if they wanted to - they just don't want to because the banks make big bucks out of holding on to the money. Sweden switched to same day transfers within a matter of months but only because the government threatened the banks with legislation if they didn't do so voluntarily.

We have an outdated system that is in the banks', not the customers', interest.

[Zoe]

You are right, cardking. But I do wonder that if we had instantaneous transfer and no creaming off of interest by the banks at overnight rates on the cash "held in the ether" between accounts, that we might be inviting charges elsewhere - such as a charge for clearing personal cheques.

[Henry]

A slow net clearing system is cheaper for the banks and therefore ultimately for the customers.

The euro clearing system TARGET is gross cross-country and is used by the UK banks for euro transactions. That might eventually lead to progress on the domestic front.

[MarkyMarkD]

Originally posted by Zoe
You are right, cardking. But I do wonder that if we had instantaneous transfer and no creaming off of interest by the banks at overnight rates on the cash "held in the ether" between accounts, that we might be inviting charges elsewhere - such as a charge for clearing personal cheques.

Spot on, Zoe. You don't get "owt for nowt". And the "free" banking most of us enjoy is funded mainly by the net interest the banks earn on the balances ... and some of this is due to slow clearance.

But once again, how much is this to get excited about?

In the 2 day delay clearing cycle on a BACS payment, the paying bank and the recipient bank both skim off one day's interest as I understand it. But so what? In exchange for this, you've made a financial payment at no cost to yourself. And one day's interest even on a £1000 payment at an annual rate of (say) 4% (if you are incredibly lucky) is worth ... wait for it ... 11p. And the average BACS payment individuals make is CONSIDERABLY less than £1000 in value.

As Zoe says (or sort of - I am putting words in her mouth slightly) would you rather have instant payments and pay 25p for them? Or would you rather have them free and take 2 working days?

I know which I like!

[Zoe]

Some building societies used to take 10 days to clear a cheque - maybe some of them still do. It depends on what the account is for, I suppose, if swift clearing matters. For long term savings accounts a day or two hardly matters if the interest you are getting in the long term is good.

I can't say that I have ever needed money so fast that waiting a day or two more for it has been a big deal. And I suppose if I did I would pay for a same-day clearing service.

I know that I find business banking charges very expensive after getting personal banking free and would not want to have to pay for my personal account if there was any way of avoiding it.

I would also be prepared to sacrifice a lot of the bells and whistles on the business account that I neither want nor need to make it less expensive.

If there are others out there like me who want a no-frills business service, then that is the market that Jim Spowart is no doubt going to exploit:

http://www.scotlandonsunday.com/busi...?id=1317462003