Banking price war on the cards as PTSB scraps fees
Customers can save €120 in charges as pressure grows on BoI and AIB
Published 16/03/2013 | 04:00
A PRICE war among banks is set to break out after Permanent TSB said it would scrap charges for customers with current accounts.
The move will put huge pressure on AIB and Bank of Ireland, both of which have put severe charging structures in place that cost the average account holder up to €120 a year, experts said.
Permanent TSB is hoping to attract some of the more than two million customers of the big banks with the move.
And Ulster Bank will now find it difficult to go ahead with its plans to bring in charges for its current account customers, now that Permanent TSB has thrown down a massive challenge to the banking sector, analysts said.
It is the first time a bank has given consumers a break since the financial crisis erupted five years ago.
Both Bank of Ireland and AIB require customers to keep between €2,500 and €3,000 in credit in their current accounts at all times to avoid fees and charges.
In the case of Bank of Ireland, if the balance falls below €3,000 – even for one minute – then charges of up to 30c for every transaction, and fees of €4.50 per quarter apply.
A survey carried out by the European Commission found that Irish current accounts were less transparent than the European average, with more complex pricing structures.
And research carried out by the Central Bank in 2011 found that most people end up paying €120 a year to their bank for operating a current account.
The fees are higher in Ireland for those who avoid going into the red than they are in the UK and the North.
Danske Bank, which was formerly called National Irish Bank, also has fees on its three types of current accounts.
Ulster Bank was forced to delay introducing a charges regime until this summer after its payments system was paralysed by an IT fault last year.
The breakdown affected 600,000 customers.
Permanent TSB has around 200,000 active current account customers and is hoping to ramp this up hugely by poaching customers from the other banks.
At the moment, customers with Permanent TSB have to pay €12 every three months for their current account unless they lodge at least €3,000, make at least 18 card purchases, make at least one online transaction and keep the account within agreed limits.
From the start of next month, the only condition to avail of fee-free banking will be to have €1,500 or more – typically a salary – paid into the account.
The bank is also bucking the trend of paying interest on money lodged in a current account.
No bank pays interest on funds in a current account at the moment, but Permanent TSB will pay 1pc interest on credit balances of up to €1,500, according to Niall O'Grady of the bank.
Before the financial crisis there were seven banks offering current accounts, with no fees charged by any of them and interest paid for credit balances.
Mr O'Grady dismissed claims Permanent TSB – which has received a €2.7bn bailout from the taxpayer – would lose money on the new initiative.
"We take a very commercial decision about product innovations like this," he said.
"If it wasn't profitable, we wouldn't do it. What this shows is that other banks are making excessive profits on the backs of their current account customers and we see a huge opportunity in challenging that."
AIB, Bank of Ireland and Ulster Bank have been struggling to return to making profits by targeting customers with higher charges for current accounts, higher interest on credit cards and increased variable mortgage rates.
Mr O'Grady said the bank, which had been slated for a wind-down at one stage, had agreed a survival plan with the troika with no current account charges, and a plan to do €350m in mortgage lending this year.
Permanent's move is set to put pressure on Bank of Ireland in particular. It is closest of the domestic banks to getting back to profitability, but has been hiking up loan rates and charges for its 1.2 million customers to boost its earnings.
Told about the new plan, Dermott Jewell, of the Consumers' Association of Ireland, said it was the best news to come out of the financial sector in "a long, long time".
"Let's hope it has the desired effect on the other players in the market," he added.