Personal Finance: New interest from Lloyds

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The Independent Online
LLOYDS BANK followed the other big banks last week and agreed to pay interest on cheques after two days rather than three.

So a cheque paid into a Lloyds account on a Monday will now start earning interest on Wednesday rather than Thursday, and you can take the cash out on Thursday rather than Friday.

This brings it into line with Midland and NatWest, which changed their policies after a blast of criticism from the Labour Party. Barclays and Royal Bank of Scotland were already on the shorter clearing cycle.

Initially, Lloyds dismissed the clamour for earlier cheque clearance, pointing out that it would make someone paying in a pounds 1,000 cheque a mere ha'penny better off.

But the bank now says that it recognises consumers are knocking on the door and that it does not want to be left out in the cold.

Every day 8.5 million cheques trundle up and down Britain's roads in our crazy clearing system.

It all stems from the 1882 Bills of Exchange Act which makes the banks return cheques to the branch at which they were issued.

This costs the banks around pounds 1.6m a year, or between 45p and 50p a cheque.

But we are in the 20th century, with computers to take the drudgery out of all this money-swapping. The banks dispensed with returning cheques to customers along with monthly statements decades ago, although some customers still insist on clinging to the old habits.

The banks already have a system for electronic data exchange that bypasses the cheques. All that is needed is a change in the legislation.

It is just possible that the Queen's Speech in November will include something on this issue (known in banking circles as 'truncation' since the cheques' meanderings around the country's trunk roads are cut short at some stage of the journey).

If the system went electronic, cheques could be stored at a few regional centres, with only the mad and bad ones having to return to base for checking.

There would be no reason why the building societies could not join the banks and offer their current account customers the same speedy cheque clearing instead of the inferior service now on offer.

Then, cheque clearing could be trimmed back further, perhaps to 24 hours.

The system would be much cheaper, but it could open a battle ground between banks and canny customers as to how these savings should be shared. The banks fear their costs per cheque will rise as we usefewer cheques. But customers are no longer willing to put up with arcane systems that allow the banks to use their cash for free.

IT IS the PEP season again, and investors are nearing the deadline to invest this year's pounds 6,000 plus pounds 3,000 in a single company scheme.

Someone who had always put the maximum in their PEP would have salted away pounds 46,200.

This is a sizeable sum, and investors should be keeping a wary watch on its progress, as well as worrying where to put the next slice.

Spring pruning and replanting might be in order, which might mean a change of manager as well as a realignment of investments.