LOUISE MCBRIDE – 28 APRIL 2013
The days of no-strings free banking will be dead and gone in another two months. Ulster Bank will pull its free current account – the only free account left in Ireland – at the start of July. The bank will charge its customers €48 a year to use its personal current account from then.
The move by Ulster Bank to charge customers for their current accounts is hardly surprising given the raft of bank charges we've been hit with over the last few years. Just how high the hikes in bank charges and interest have been since the recession kicked in about five years ago is jaw-dropping though.
The Sunday Independent compared some of the fees and interest charged by banks five years ago to what they're charging today. We found that many banks are charging almost twice as much interest on credit cards today as they did in early 2008, while the interest charged on personal loans has been jacked up by as much as one-fifth. Our research also found that banks have more than doubled their credit-card fees over the last five years while overdraft fees have increased by as much as 20 per cent.
ONE of the cheapest credit cards offered by Bank of Ireland in February 2008 was its Clear credit card, which charged 9.5 per cent interest on credit-card purchases (when you use your card to buy something). Last month, Bank of Ireland stopped offering the Clear credit card. By the time it pulled Clear, the interest charged on card purchases had soared to 17.8 per cent – almost twice as much as the interest charged on the card five years ago.
One of the main credit cards offered by Bank of Ireland today is its Classic card. The Classic card charges a hefty 19.9 per cent interest on credit card purchases – more than twice the rate charged on the Clear card five years ago. Bank of Ireland has also introduced two new credit card fees since 2008 – a late payment fee of €7.50 if you're late paying your credit card bill, and an over-limit fee of €7.50 if you go over your credit card limit.
AIB is no angel either. In February 2008, AIB charged 8.5 per cent interest if you used its Click credit card to buy something. It has since hiked this interest rate by 60 per cent – bringing the interest charged on credit card purchases to 13.6 per cent. Under this rate, you'll pay €56 a year more in interest on a €1,000 credit card bill than you would have in 2008, according to Ronan Coburn, banking consultant with The Bottom Line.
If you have a 'be' credit card with AIB, you're paying almost 50 per cent more interest on purchases than you did in early 2008 – the bank has jacked up the interest rate on the card from 15.15 per cent to 22.7 per cent over the last five years. This will cost you €91 a year more in interest on a €1,000 credit card bill than you would have paid in 2008, according to Coburn. If you're paying 15.15 per cent interest on a credit card bill of €1,000, you'll pay €161 interest after a year – but that annual interest jumps to almost €252 under an interest rate of 22.7 per cent, said Coburn.
It's a similar tale at the other banks. Permanent TSB has increased the interest rate charged on its Ice card by about 75 per cent over the last five years. In February 2008, the interest rate on credit card purchases made with the Ice card was 9.9 per cent – today, it's 17.3 per cent. Permo has also introduced a late payment fee of €7.50 over the last five years – before December 2008, the bank did not charge its customers any fee if they were late paying their credit card bills.
That leaves the foreign-owned Danske Bank and Ulster Bank. Danske Bank has pushed up the interest charged on its credit cards by up to 86 per cent over the last five years. Ulster Bank has increased the interest charged on its Classic card by almost 38 per cent since February 2008. Ulster Bank has also more than doubled its unpaid item fee – which is charged when you don't have enough money in your account to clear your credit card bill – over the last five years. In early 2008, the unpaid item fee on its Classic card was €3 – it is now €7.
Permanent TSB and Ulster Bank have introduced scary increases in the interest charged on overdrafts over the last five years, according to our research.
In February 2008, Permanent TSB charged 13.6 per cent interest on overdrafts – it has since pushed up that rate by almost one-fifth to 16.3 per cent. Ulster Bank has increased its overdraft interest rate by more than one-third – from 11.55 per cent in February 2008 to 15.55 per cent today.
Overdraft fees haven't been left untouched either. Last February, Bank of Ireland increased its annual overdraft facility fee (the fee charged to customers who set up overdrafts with the bank) from €25 to €30 – a 20 per cent increase. A spokeswoman for Bank of Ireland said the bank had not increased this fee since 2004.
"The bank continues its focus on reducing its own cost base and as part of that process must also seek to recover the costs of providing these services to its customers," said a spokeswoman for the bank.
Back in 2006, it was still possible to pay single-digit interest on personal loans. If borrowing €3,500 in October 2006 for example, Bank of Scotland, which was still lending in Ireland then, charged 7.2 per cent interest on personal loans. By 2008, it was a struggle to get a personal loan which charged less than 10 per cent interest. Furthermore, many of the banks have increased the interest charged on personal loans by at least one-tenth since.
In November 2008, AIB charged 11.74 per cent interest on a personal loan of €3,500 – it has increased that rate by almost one-fifth since. Bank of Ireland and Permanent TSB have increased the interest charged on a similar loan by about one-tenth over the last five years. In late 2008 for example, Permanent TSB charged 12.5 per cent interest on a personal loan of €3,500 – today, it charges 14 per cent interest.
You must now pay between €18 and €125 a year to have a current account. You can avoid the fees – but only if you can either lodge a few grand into your account each month – or keep a few grand sitting there.
With Ulster Bank for example, you must either lodge €3,000 a month into your account – or keep a minimum balance of €3,000 in your account to avoid paying €4 a month in account charges. With Bank of Ireland, you must also keep at least €3,000 in your account to avoid paying fees.
With AIB, you can avoid fees by keeping at least €2,500 in your account.
To avoid paying €48 a year in current account charges to Permanent TSB, you must lodge €1,500 a month into your account. You won't have to cough up for charges if your account balance falls below €1,500.
Simon Moynihan, director of communications with the personal finance website, bonkers.ie, said the €3,000 limits imposed by Ulster Bank and Bank of Ireland put free banking with those banks out of the reach of most people. "Permanent TSB's €1,500 limit is within reach of most normal people – but €3,000 isn't," said Moynihan.
As banks struggle to boost their profits, chances are we'll get hit with more hikes in bank charges and interest over the next few years. The Central Bank's director of consumer protection, Bernard Sheridan hinted at this when he addressed the Joint Oireachtas Committee on Finance, Public Expenditure and Reform earlier this month. "To a large extent the banks are relying upon existing customers to try to recover more costs," said Sheridan.
Only last week, it emerged that AIB and EBS will be hitting homeowners with a hike in standard variable rates this June.
You simply can't take your eyes off them for a second.