James Daley: Lloyds' new cheque deal is a joke
Saturday 29 April 2006
Britain's high street banks have been entangled in a rather pathetic war over the past few months, competing with each other to come up with ever more pointless gimmicks, which they can then dress up as great innovations in banking.
This week, it was the turn of Lloyds TSB - which is apparently about to become the first bank to start paying interest on cheques from the moment they're handed over the counter.
Given that cheques currently take three days to clear, that's an extra two days' interest, it boasts- which, if you're regularly depositing large sums of money, could be very valuable. Or rather, would be very valuable, if it wasn't for the catch.
Lloyds' great innovation is restricted to cheques of £1,000 or less (and no more than £1,000 in any one day). This means that even if you've got one of its higher-interest-bearing current accounts (such as Classic Plus, which pays 4 per cent a year), your total maximum gain on the extra two days' interest will be somewhere in the region of 20p. Big deal.
And if you've got one of Lloyds' regular current accounts, which pay interest of just 0.01 per cent a year, your total gain will be around 0.05p per £1,000 cheque. Saving your pennies may make you pounds, but you'd have to cash 20 £1,000 cheques before you'd even make a single penny back on this deal.
But let's face it - even if Lloyds hadn't put a £1,000 limit on its offer, this would never have been a particularly valuable service for the average customer. Cheques are quickly going out of fashion, and on the occasions they are used by private individuals, they are often for small amounts on which the interest would be irrelevant.
This isn't going to stop Lloyds blowing thousands of pounds on an advertising campaign to boast of its innovation, mind you. A bit like Barclays and its 10 per cent savings accounts, another legendary gimmick, which you might have seen advertised on TV over the past few months.
Ten per cent! What an amazing deal, you might think. But yet again there's a large catch. This time, it's that the 10 per cent only applies if you put between £25 and £250 away every month, and even then, the deal only applies for a year.
So the only part of your savings that benefit from the full 10 per cent interest is the first month's deposit. Even if you save the maximum every month, the total interest you'll make is about £129 after tax over the year -which equates to an annual rate of 4.3 per cent on your £3,000 of contributions.
Granted, this is a competitive rate -but the focus on 10 per cent is disingenous. Furthermore, Barclays shamelessly stole this idea off the likes of HSBC and Alliance & Leicester, which launched similar accounts months ago. Barclays adverts, however, hark on like it's just reinvented the wheel.
The financial services industry is riddled with such sorcery these days. Marketing directors are convinced by the notion that consumers will jump at anything that appears to be free or well ahead of the market norm.
Look at Carphone Warehouse's "free broadband" deal. Clearly, there's nothing free about it. You have to be signed up to the company's telephone package as well, and rest assured that the company will find a way of clawing back any discounts from you in the long run. If it doesn't, chief executive Charles Dunstone will find himself getting lynched by the company's shareholders.
Every financial services offer that looks too good to be true is too good to be true. And eventually, even the customers who do sign up for such deals manage to work out the reality.
At a time when banks and insurers are trying to regain investors' and consumers' confidence, this seems a very short-term and cynical way of running your business. Surely it can only backfire in the long run.
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