Bank paying me - what's in it for them?

[spikey]

So I took the bribe of £130 to move our current account from Barclays to TSB.  All I have to do is keep paying in at least £500 a month and I now get

 

Free personal banking

Interest on the balance each month

£5 a month for using my debit card 20 times in that month

and £5 a month for having two direct debits going out

 

How on earth does having me as a customer benefit the TSB?

[Zomboid]

They have your money now.

[34theletterbetweenB&D]

...and next year they will find a way to claw back all the bribes...

[jonny777]

I have one of those accounts, and with my average balance throughout the month of around £500 I get about £1.95 interest. 

 

Not exactly over generous. 

 

Be careful though if your monthly credit to the account is like mine and appears at the beginning of the month. If the month ends on a weekend and they pay your credit in on the Friday (i.e. at the end of the previous month, instead of the 2nd or 3rd which maybe the Monday) you will get no interest for the following month because the computer sees two payments in (say) December, none in January and one at the beginning of February. 

 

The rules say you must add at least £500 every calendar month, not just at regular 30/31 day intervals.

[spikey]

They have your money now.

Indeed.  But our average balance in that account is never more than £500, so how can they make a profit out of us?

 

...and next year they will find a way to claw back all the bribes...

I'm sure they'll try to do just that, but when they do, we simply switch again to whoever's offering the best bribe.

[jonny777]

Indeed.  But our average balance in that account is never more than £500, so how can they make a profit out of us?

 

 

 

They lend your money out at higher interest rates than they pay you...

[spikey]

They lend your money out at higher interest rates than they pay you...

Of course they do.  But out of the profit they make on that, they pay us £10 a month plus another quid or so interest, and they have their overhead on the transactions we make.  That's why I can't see what's in it for them.

[jonny777]

I suppose they believe that for every 1000 folk who take up the offer, a large percentage will stay after the 12 month cash back period runs out because they just can't be bothered to switch yet again. 

 

So for them it may be a loss leader, but after 6-12 months they have lots more new customers. 

[chriswright03]

It is a good deal so don't keep yourself awake at night worrying about the banks.  

[spikey]

I suppose they believe that for every 1000 folk who take up the offer, a large percentage will stay after the 12 month cash back period runs out because they just can't be bothered to switch yet again. 

 

So for them it may be a loss leader, but after 6-12 months they have lots more new customers. 

Well, that's all we could think of.  Hell of a way to run a business though.  They ought to go back to having proper mahogany counters in proper bank branches, blotting paper in chequebooks, and apologising if they had to give you used notes when you cashed a cheque ...

[Horsetan]

.... They ought to go back to having proper mahogany counters in proper bank branches, blotting paper in chequebooks, and apologising if they had to give you used notes when you cashed a cheque ...

...and closing at 3.30pm, with no weekend opening.

[pete_mcfarlane]

...and closing at 3.30pm, with no weekend opening.

 

At this rate they'll be giving single women Mortgages without needing approval from their Father. 

[Dunsignalling]

I suppose they believe that for every 1000 folk who take up the offer, a large percentage will stay after the 12 month cash back period runs out because they just can't be bothered to switch yet again. 

 

So for them it may be a loss leader, but after 6-12 months they have lots more new customers. 

Exactly, it's all about building market share.

 

John

[Clearwater]

Well, that's all we could think of.  Hell of a way to run a business though.  They ought to go back to having proper mahogany counters in proper bank branches, blotting paper in chequebooks, and apologising if they had to give you used notes when you cashed a cheque ...

But borrowing money at one lower rate and lending it out at a fractionally higher rate is fundamental to what a bank does. When you deposit money, you are "lending" it to them. It's a source of capital every way as much as issuing a bond brought by other investors. Like the discussions on other threads on supermarkets and their small margins, bank profits are built up in the same way on the back of million upon million of small transactions on which they take a tiny cut each time.

 

David

[ba14eagle]

And, no doubt, there are probably hefty penalty payments, if you stray into the red.

[NorthBrit]

Don't worry about it.  The bank is only paying you 'chickenfeed' compared to the profit they make through a myriad of investments.  That 'chickenfeed' seems to be working as you keep your money with them.  Just be wary that the taxman doesn't come calling if you do not declare the interest (no matter how small)  Keep the statements with the interest payments on.  It is you who has to prove how small that interest is, not them.

 

I can bet my last dollar that your Bank Manager doesn't   worry about you receiving such 'gifts'  as he collects his annual bonus.

[Andy Hayter]

And don't forget that once they have you as a customer, they have your details to legitimately try and sell you a whole host of other things - insurances, mortgages, need a loan sir?, How about an overdraft facility? You should open an account for your son/daughter to save up for college, for their first mortgage, for their flat rental deposit and so on.

[Clearwater]

Don't worry about it.  The bank is only paying you 'chickenfeed' compared to the profit they make through a myriad of investments.  That 'chickenfeed' seems to be working as you keep your money with them.  Just be wary that the taxman doesn't come calling if you do not declare the interest (no matter how small)  Keep the statements with the interest payments on.  It is you who has to prove how small that interest is, not them.

 

I can bet my last dollar that your Bank Manager doesn't   worry about you receiving such 'gifts'  as he collects his annual bonus.

Retail banking bonuses to front line staff are not exactly large. The "Bank Manager" these days is a pretty low grade and won't be receiving anything like the bonus you're alluding to. Retail banks only make a large absolute profit based on having an extremely large number of loans. See eg p6 of https://www.home.barclays/content/dam/barclayspublic/docs/InvestorRelations/ResultAnnouncements/2017Q3Results/20171026_Q317_Results_Presentation.pdf (ie the UK retail business) had loans to customers of £182bn

[spikey]

And don't forget that once they have you as a customer, they have your details to legitimately try and sell you a whole host of other things ...

Well they can try as hard as they like AFAIC.  Having said that, though, they'd be in breach of their own T&Cs if they did - we opted out of all that!

 

Whatever, after having had our account with Barclays for donkey's years for no reason other than inertia on my part, I'm still bemused by how easy it was to switch when I finally got my wossname in gear.  And by how much better off we are now ...

[chriswright03]

Don't worry about it.  The bank is only paying you 'chickenfeed' compared to the profit they make through a myriad of investments.  That 'chickenfeed' seems to be working as you keep your money with them.  Just be wary that the taxman doesn't come calling if you do not declare the interest (no matter how small)  Keep the statements with the interest payments on.  It is you who has to prove how small that interest is, not them.

 

I can bet my last dollar that your Bank Manager doesn't   worry about you receiving such 'gifts'  as he collects his annual bonus.

You can earn £1000 without paying tax so I think the OP should be OK.

[chris p bacon]

...and closing at 3.30pm, with no weekend opening.

 

Here in Sandy (Population 13,000) Barclays are to close the last bank in town in 3-4 days time. Lloyds closed a couple of years ago and the footfall to shops dropped by half, and now with Barclays closing there is no bank at all. 

[4630]

TSB's thinking behind this will probably be along these lines;

 

TSB will have set an overall corporate objective of 'acquiring' a certain number of new current account customers from rival banks.  Thereby increasing its market share of current accounts.  A bank that's performing in line with its overall corporate objectives is obviously good for its share price.

 

To 'acquire' the customers requires a bribe an 'incentive' to overcome the customer inertia that you mentioned.  In this case the incentive is 3% interest on the balance, provided that £500 minimum is paid in each month.  By the way, if I've read the T+Cs correctly interest is only paid on balances up to £1,500.

 

Interest will most likely be calculated on the daily balance (probably the daily cleared balance) and typically most current accounts will have a rapidly reducing balance over the course of the month.  So the interest is being calculated on a reducing account balance.  At a corporate level, there will have been some initial business assumptions about;

• the total number of new accounts 'acquired',
• the average monthly 'salary/monthy credit',
• and the likely average reduction in balances over the month.  

From that they will have done some modelling on likely product performance, customer activity and the forecast interest cost to the bank.

 

You can be pretty sure that the banks accountants and product managers will be tracking actual performance very closely, probably monthly, against those initial business assumptions.  Depending on performance you will almost certainly see that rate come down - the only question is when and by how much.

 

The interest rate of 3% is actually pretty generous in the current climate.  In my day of doing this stuff for a living for one of the major UK banks the London Inter-Bank Offered Rate (LIBOR) was frequently used as a reference rate.  Currently LIBOR is between 0.47299% and 0.81400% depending on the term*, so in simple terms the bank is 'happy' being generous because it helps achieve the banks wider corporate objective.  But the banks generosity will only last so long.

 

The other incentives are interesting;

 

£5 per month for using the debit card 20 times per month.  The bank will have made an assumption about the percentage of accounts where the £5 become payable each month.  Again, if the banks assumption proves false you can expect the terms to be amended - possibly increasing the number of times that a debit card has to be used, to say 30 times, before qualifying for the £5.  Of course, the canny customer will 'game the system' to make sure that they will always qualify.  I certainly would!

 

£5 for having two direct debits going out seems to me to be a bit of a give away by the bank.  But of course, what the bank is trying to do here is to get as much of your business as it can and the more it knows about you, particularly transaction activity, the more it can tailor its marketing to you.

 

To answer your question "How on earth does having me as a customer benefit the TSB?" - the bank will be looking longer term.

 

It will lose upfront, but it knows and accepts that and has 'priced that cost in'.

 

In the longer term it will have made assumptions about what other of its products and services, that will be profitable to it, that it will be able to 'persuade' you that you need.

 

 

* http://www.global-rates.com/interest-rates/libor/libor.aspx

Edited February 2, 2018 by 4630

[BoD]

Another bank (from Spain) pays the same interest on their current account as the best I could get for committing to a fixed bond ISA for 18 months. Plus cash back on certain direct debits. Someone, somewhere is taking the pee.

[EddieB]

But borrowing money at one lower rate and lending it out at a fractionally higher rate is fundamental to what a bank does. When you deposit money, you are "lending" it to them. It's a source of capital every way as much as issuing a bond brought by other investors. Like the discussions on other threads on supermarkets and their small margins, bank profits are built up in the same way on the back of million upon million of small transactions on which they take a tiny cut each time.

David

Don’t just think that they just borrow some money from one customer (paying x amount of interest) and simply lend that same amount to another (taking the higher y amount of interest). No, they may lend that same amount out many times over - “fractional reserve” is what they call it - which works find and dandy until the investors want their money back. As banks got greedier and greedier, so the number of lending multiples increased, and they played with margins between short and longer term loans and borrowing. It made for big profits, but increased risk - until the whole edifice came a-tumblin’ down.

 

Since then, the rules have been tightened and the amounts held in reserve increased, so the banks are coming up with ways to lure customer volume. Just watch how their best offers are to new customers and how quickly they change the rules for existing customers.

[cheesysmith]

My brother has more than one of these accounts. Every month he has electronic transfers between them, on the same date and time, so the monies go in/come out as needed. He even has more than one at the same branch, and even the manager tried to say he couldn't have multiple accounts, to which he took out the T&Cs and asked him to show where it says you cannot have more than one.