From July 1st, Ulster Bank will become the last of the major banks in the Irish market to introduce current account charges. Customers who do not avail of either of what Ulster Bank describes as two “attainable” waivers – a monthly lodgement of €3,000 or the maintenance of a current account balance of the same amount for each “charging cycle” – will incur charges of €4 per month.
Coming as it does less than a year after a computer meltdown that cost millions of euro and weeks of inconvenience, many customers will have been left agog.
But it is a similar story across the retail banking sector in Ireland. Bank of Ireland customers must maintain a minimum balance of €3,000 to avoid fees, while AIB customers must maintain one of €2,500.
Permanent TSB and EBS Limited have less severe but similar requirements, while interest rates, transaction charges and overdraft charges are also all generally on the increase. Small wonder then that, according to the Competition Authority, competition in banking in Ireland and elsewhere is “weak and [the number] switching between banks remains low”.
The explanation of most is simply that costs have increased. Ulster Bank says it is only reintroducing fees that it removed in 2005, while Allied Irish Banks says current account fees are needed in order to make it “a strong and profitable entity again”. Bank of Ireland says it has only amended its “no transaction fees offer” in order to continue “providing a market leading current account proposition”.
Regardless, customers sick of the apparent disconnect between reality and the banking industry are unlikely to care. The requirement that they maintain a minimum balance or monthly lodgement of between €1,500 and €3,000 seems particularly punitive of those on lower incomes. Are there any alternatives to simply continuing to bank with the same old players?
One option is to open an account with a credit union. According to the Irish League of Credit Unions, a credit union is largely distinguishable from a bank in that it is a “not for profit entity, owned by its members and existing only to service [them], not to profit from their needs”.
Like banks, credit unions offer services in savings, loans and insurance, but unlike banks there are no annual or quarterly fees. There is a basic fee of €1.27 to open an account. According to the National Consumer Agency, the biggest problem for consumers is that these accounts “don’t have the breadth of money transmission services that would be available from a typical current account”.
Most credit unions do not offer current accounts or facilitate ATM services or electronic transfer payments for example. The Credit Union Bill 2012 should change much of this, however.
An application for a payments institution license is currently being processed by the Central Bank. Once this is secured, it will allow credit unions to start offering electronic payment transfers between accounts (including bank accounts) such as bills or salaries, and eventually, debit card and ATM services. Recently, however, 16 credit unions suffered losses of €15 million due to exposure to the liquidation of the former Anglo Irish Bank, and concerns over further losses have resulted in lending restrictions being placed on many of them.
An Post option
A second option is the post office. An Post offers everyday banking services on behalf of AIB and Danske Bank. It also offers State Savings and Investments, as well as the facility to pay bills online. There are no fees or charges, and with more than 1,000 retail outlets, it has the most extensive branch offering of all. It does not offer current account, direct debit or ATM services, however.
In the UK, Bank of Ireland has teamed up with the Post Office to pilot a scheme in which it will offer current accounts to consumers there, but An Post says there are no plans for anything similar here. Bank of Ireland would not be drawn on whether it intends to charge UK customers for such accounts, saying that the markets are “fundamentally different. We do not believe it would be appropriate to compare.”
A third option is to try and avoid electronic transfer services altogether, but this is not easy or necessarily a good idea. In a recent press release, the European Commission noted that “citizens cannot fully participate in society without a basic bank account. [They] have become an essential part of our everyday life.”
From utility providers to estate agents to employers, it is true that most modern services require a bank account to facilitate direct debit payments, or even just to prove one’s identity. Many on social welfare or in debt are experiencing difficulties in this regard, according to Michael Cullity of the Money Advice and Budgeting Service. “There are people who have lost jobs or are in debt whose access to their account and its transactional facilities has been curtailed.” That said, with 58 million EU consumers over the age of 15 not having a basic payment account, there are those who seem to manage to get by without one.
Shop around
For those opting to stay with the banks, the advice of the National Consumer Agency is to shop around. "We would like to see more consumers switching in this sector," said a spokesperson. This is also the view of the European Commission. Last week it published its proposal for a directive on "the transparency and comparability of payment account fees, payment account switching and access to a basic payment account".
For the public this should lower costs, increase competitiveness, help those cut off from the system by unemployment or debt and allow consumers to open bank accounts in EU countries where they are not resident. There is also an obligation on the banks themselves to do more in terms of transparency here says the NCA. “In order for more consumers to switch, there needs to be better communication by the industry of how the switching code works.”
Ultimately, as so many people have learned to their cost in recent years, the most effective approach is to be discerning and informed of the various services on offer.
