http://money.independent.co.uk/personal_finance/invest_save/article3318006.ece

Revealed: a new bank rip-off

By James Daley, Personal Finance Editor

Published: 08 January 2008

Some of Britain's biggest banks have unscrupulously exploited last month's base rate cut by failing to pass on the benefits to mortgage holders, yet at the same time imposing even bigger cuts on interest accruing to savings accounts.

The double whammy means banks are squeezing their customers tighter than ever this winter, as they fight to protect their dwindling profits from the credit crunch and potential legal action over bank charges.

New figures from the financial advisers Chase de Vere reveal that 18 banks and building societies – including high street names such as Alliance & Leicester, Halifax, Lloyds TSB and NatWest – have within the past month cut the rate on one or more of their savings accounts by more than December's 0.25 per cent cut in the Bank of England base rate. Over the same period, 14 lenders also failed to reduce their standard variable mortgage rates by the full 0.25 per cent, according to comparison service Moneyfacts, including Egg and, once again, Alliance & Leicester.

Meanwhile, banks have been busy raising their charges and fees, as they desperately try to recoup the income they are losing as a result of the credit crunch. Most of the big banks have restructured their overdraft charges in the past few months, introducing an ever-more complex web of fees designed to catch out consumers.

Although customers are no longer able to reclaim unfair charges through the courts – pending the outcome of a test case between the Office of Fair Trading and eight of the country's biggest banks, due to begin next week – consumers are still being hit with fees as high as £60 for exceeding their overdraft by only £50.

The squeeze has sparked a renewed backlash from politicians and consumer groups. Vince Cable, the deputy leader and Treasury spokesman for the Liberal Democrats, said it was time for much greater regulation of the banking sector, saying it was no longer acceptable to let banks earn " supernormal" profits at the expense of the consumer. "What's happening is that banks are securing as much money as they can for their shareholders on the upswing, and on the downswing they're running to the Government for help," he said. "And that's not an acceptable situation.

"The Cruickshank report [in 2000] pointed out that, if you evened out the cycle, the banks were making supernormal profits but they also have regulatory privileges, including a lender of last resort. Yet they're allowed to take consumers as far as they possibly can.

"The retail banking sector is effectively equivalent to a utility – pumping money around the economy – and it should be regulated like a utility. That means having a rate of return like utility companies and accepting regulation of their margins, and the amount they can earn on charges. Their profits must be reasonable."

Meanwhile, the banking backlash is set to gain even greater profile this week, as folk band Oystar releases a single "I fought the Lloyds and won ", telling the story of how one band member successfully reclaimed £530 in charges. It is expected to make it into the top 40 this weekend. The consumer group Which? is also planning a demonstration against the banks outside the courthouse on the first day of the OFT trial next week.

Nick White, head of personal finance at the comparison site Uswitch.com, said consumers should expect banks to continue to increasing charges in spite of the increased pressure, predicting consumers will only begin to get a better deal if the OFT wins its court case.

Lloyds TSB has been one of the worst offenders with its overdraft charges, hitting consumers with fees of up to £20 a day for exceeding their limit.

"Quite simply, the banks are making less money than they were before," said Mr White, "and they need to find new ways of making it back. As a consumer, it's more important than ever to keep an eye on how much you're being charged – and if you don't like it, use your power as a consumer, and switch."

Nationwide Building Society yesterday launched a campaign to force the banks to provide customers with greater transparency and better value on their savings accounts, complaining too many are manipulating their interest rates to put themselves at the top of "best buy" tables. The building society said too many savings accounts had artificially high headline rates, which drop back to ordinary rates after the first few months, while an increasing number of accounts are also subject to onerous conditions, such as removing all interest payments in any month where a withdrawal is made.

Matthew Carter, the director for savings at Nationwide, said: "Some providers seem more interested in boosting profit and achieving best-buy status than offering long-term good value to their customers."