Tuesday 21 November 2017

Revealed: the worst bank fee and rate rip-offs of last decade

Some financial institutions are charging twice as much interest on credit cards as in 2007 and penalty charges have also soared

Here are some of the worst bank charge and interest rate hikes of the last 10 years. (stock image)
Here are some of the worst bank charge and interest rate hikes of the last 10 years. (stock image)
Louise McBride

Louise McBride

The reputation of the Irish banks has been badly damaged by the tracker mortgage scandal. One way the banks could start to restore their reputation would be to reverse the hikes in bank charges and interest rates which they've hit us with over the last decade.

Hundreds of thousands of bank customers have seen their bank charges and interest rates more than double since 2007 (which was one of the last years that tracker mortgages were still being offered by the Irish banks).

Here are some of the worst bank charge and interest rate hikes of the last 10 years.

Day-to-day banking

Many Permanent TSB (PTSB) customers have just seen - or are about to see - an almost fivefold increase in the cost of their everyday banking. This is because the bank has increased the maintenance fees on its older legacy accounts from €15.24 a year (€3.81 every three months) to €72 a year (€18 every three months). Some of the legacy accounts were liable for the higher fee from September and October, while for others the new fee hits in late November. Although customers can avoid the higher fee by keeping a minimum credit balance in - or by getting their salary lodged into - their account, many will still be caught out by the higher charge.

PTSB has offered customers with legacy accounts the option to switch to its new Explore current account. However, the maintenance fees on Explore add up to €48 a year (€12 every three months) and unlike PTSB's legacy accounts, the fees on Explore cannot be avoided by getting your salary paid into, or keeping a certain balance, in the account. The Explore account pays customers up to €60 in cashback a year (€5 a month) for using their debit cards - and it also offers cashback on certain bills.

"Customers availing of the benefits on the Explore account can recoup the €4 monthly maintenance fee in full and earn more than this each month through our cashback offering for using their account," said a spokesman for PTSB. The Explore account however won't suit customers who have no interest in cashback offers, who prefer to pay in cash, and who would rather have an account with a smaller, and avoidable, maintenance fee.

With all banks, it has become increasingly difficult to avoid maintenance fees on current accounts in recent years. This is in stark contrast to the boom years, when no-strings free banking was the norm. Today, you must typically keep (or make monthly lodgements of) a minimum of €2,500 or €3,000 in your current account to avoid maintenance charges, depending on the bank and the account. You cannot however avoid maintenance fees with Bank of Ireland's current account - you can only avoid transaction fees on this account and even then, only if you keep a minimum credit balance of €3,000 in your account. Similarly, you cannot avoid maintenance fees on PTSB's Explore account.

A spokesman for AIB said that about 40pc of its current account customers don't pay maintenance or transaction fees on their accounts.

Credit cards

The interest charged by banks on credit cards has soared over the last decade, with some charging twice as much interest as they did in 2007. In 2007, PTSB charged 9.9pc interest on credit card purchases on its Ice card. Today, it charges 20.7pc interest on such transactions - more than twice the rate charged in 2007. The interest charged on cash withdrawals on the Ice card has jumped from 11.6pc in 2007 to almost 21pc today.

PTSB said that the pricing "reflects current market conditions". "Historic pricing reflected the market conditions of the time," said a spokesman.

Another card which has seen its interest rate more than double since the boom years is Bank of Ireland's Clear credit card. In 2008, Bank of Ireland charged 9.5pc interest on credit card purchases made with the Clear card - today, it charges holders of that card 19.9pc interest.

The Clear credit card is no longer available to new customers as the card was withdrawn from the market in March 2013. The interest charged on the main credit cards available from Bank of Ireland for new customers today (Classic and Platinum Advantage) is much higher than the interest initially charged on the Clear card.

A spokesman for AIB said the bank had not increased the interest rates on its credit card products since 2010.

Another thing which has increased the cost of borrowing for some credit card customers was a move made by Bank of Ireland in March 2014. From that date, the bank started to charge its credit card customers interest from the moment they used their cards to withdraw cash - previously they had 56 days of interest-free credit on cash advances and could avoid getting hit with interest if they repaid their credit card bills on time. This is no longer the case. The only way to avoid getting hit for interest on cash withdrawals made with a Bank of Ireland credit card now is to ensure your credit card account is in credit and fully meets the amount of cash withdrawn and any transaction fees.

With AIB and PTSB, you can avoid interest if you use your credit card to withdraw money, as long as you repay your bill on time. (Exceptions are AIB's low-interest Mastercard and Budget Mastercard as there is no interest-free period.)

Ulster Bank and KBC Bank charge interest on credit card cash withdrawals from the date the cash is withdrawn - even if you repay the outstanding balance in full each month.

Penalty fees

Many banks have more than doubled their credit card penalty charges over the last decade.

For example, the over-credit-limit fee (which is charged when a customer exceeds their credit card limit) on AIB's 'be' credit card was €2.54 in March 2007 while the late payment fee (charged when a customer is late paying their credit card bill) was €3.81. Both fees were increased to €7 in March 2008 and have stood at that rate since.

PTSB introduced a late payment fee of €7.50 on its Ice card in December 2008 - before then, its Ice customers were not charged a late payment fee. In the late Noughties, Ulster Bank increased its unpaid item fee (charged each time you don't have enough money in your account to clear a credit card transaction) from €3 to €7.

In March 2007, Bank of Ireland offered Standard Advantage and Gold Advantage credit cards. Neither of these cards had any late payment or over credit limit fees. These cards can no longer be taken out by new customers but existing holders of Standard Advantage and Gold Advantage cards are now charged a late payment fee of €7.50 and an over credit limit fee of €7.50. The late payment and over credit limit fees on Bank of Ireland's Classic and Platinum Advantage card (the cards which can be taken out by new customers today) are also set at €7.50.

Asked why its credit card charges have increased over the last decade, a spokeswoman for Bank of Ireland said: "Since 2008, Bank of Ireland introduced a number of innovations to enhance the consumer experience. Features which have been introduced include Card Care, which allows customers take control over their credit card with up-to-the-minute balances."

Some penalty charges on current accounts have also seen a big jump over the last decade. For example, in January 2007, AIB's charge for an unpaid standing order (where a customer doesn't have enough money in their account to cover a standing order) was €6.35, while PTSB's charge was €4.44. Both charges have since risen to €10.

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