Money Matters - Bank online to net a better deal
IF YOU are not online, you are missing out on the banking revolution sweeping across the country.
Internet-based banks open for business almost every week offering higher savings rates, but lower mortgage, loan and credit-card rates.
Net banks are cheaper to run than traditional banks, because they do not have the expense of a branch network or telephone call-centre. If you can get online, you should therefore be able to net a better deal.
The leaders of the revolution are not the big high-street banks - Barclays, HSBC, Lloyds TSB, and NatWest – but smaller banks, building societies and insurers.
For example, Prudential runs the successful Egg operation. Co-op Bank has launched Smile and HFC bank has set up Marbles. Halifax has announced plans for an internet division - Greenfield - early next year, which is when Abbey National is set to launch Aquarius. A French bank, Enba, has also opened first-e to British consumers.
The banks will soon offer the full range of high-street products and services, including market-leading mortgages, savings accounts, credit cards and current accounts.
Mervyn Pedelty, chief executive of Co-op bank, says: "Banking over the internet will become the norm when all the banks start passing on the benefits to customers in the form of cheaper products."
Meanwhile the big high-street banks allow customers to conduct only a small range of transactions online – HSBC and NatWest will not even launch net services for several weeks or months. They therefore risk being left behind as customers move to more dynamic firms.
Toby Strauss, an e-commerce expert, says: "The big banks have a problem because they don't want all their customers to move into low-profit internet banking. They will have to keep most of their branches open, so the internet is seen as just another cost."
About 1m people bank online, but this figure is expected to rocket to 7m by 2003, according to Fletcher Research. However, we lag well behind America - with 10m net bank customers - and Germany, with 3.5m users.
Benjamin Ensor from Fletcher says: "Internet banking services in this country are fairly crude. Consumers need to understand the benefits of banking online, which have only recently become apparent." Ensor believes that consumers are worried about security, although the problem is not so acute following the introduction of new high-tech secure systems.
However, customers are frustrated by the slowness of many services. Popular sites, including Egg, tend to crash regularly, which can be troublesome if you are midway through a transaction." A lot of the time it is easier to pick up the phone," says Ensor. But if you decide to take the plunge and start banking on the net, where should you look for the best deals?
Savings accounts: internet savings accounts are the most popular and prolific financial products available online.
The accounts pay the same interest rate for all deposits over £1, and the best deal is from Egg. It pays savers 6%, while first-e pays 5.92%.
To withdraw money you usually transfer cash electronically into your current account, although Smile and Norwich & Peterborough offer cashpoint cards. But phoning net banks could cost you up to £3 a call.
Current accounts: on October 28, Smile will launch the first net-based current account. It pays interest of 4% gross when you are in credit, and charges 9.9% for authorised overdrafts. The rates are far more competitive than any other current account. The high-street banks pay negligible rates of interest - less than 0.5% gross - when you are in credit, and charge about 13% for authorised overdrafts. Egg and first-e are both planning competitive current accounts.
Credit cards: last month, Egg launched a market-leading credit card which is only available online. It charges borrowers 9.9% APR - half the price of many high-street cards.
Smile will also launch a card with a rate of 9.9% for customers with current accounts. Everyone else will pay 12.9%. Marbles charges an APR of 14.9%.
Mortgages: Egg and Market Harborough building society both offer online mortgages. Egg charges a variable rate of 5.84%, while Market Harborough offers a one percentage point discount off the standard variable rate for the lifetime of the mortgage. The discount will save a borrower with a £100,000 mortgage about £19,000 over 25 years.
What the high street banks offer
Barclays claims to be the biggest internet bank. Its service is available to all current-account customers and allows you to transfer money between different accounts, pay bills and check your balance. Barclays is also an internet service provider, offering customers free net access. www.barclays.co.uk
HSBC has decided to concentrate on banking via a digitial television. Last month, it launched Britain's first TV bank available to Sky Digital customers. The service allows you to check balances and monitor credit-card bills. The bank also plans to launch an internet banking service next year. www.banking.hsbc.co.uk
NatWest offers the most limited hi-tech banking facilities. It currently has no online access, although an internet service will finally be launched next month. It will allow you to pay bills and check your balance. www.natwest.co.uk
Lloyds TSB allows customers to check the balances of their current or savings accounts and to arrange standing orders over the net. However, the bank closes the service for four hours every night - between midnight and 4am. The bank also offers Gold Service customers free internet access. www.lloydstsb.co.uk