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Andrew Verity reports
"The Internet banks say it is right they should pay higher interest because on-line accounts are cheaper to run
 real 56k

Monday, 20 November, 2000, 15:44 GMT
A matter of high interest
Bank interior
High Street banks are costing us more.
The development of online banking is saving banks millions in operating costs. Are they passing this windfall on to customers? The BBC's personal finance reporter, Andrew Verity, investigates.

More are more of us are using the internet and telephone to do our banking because we are told it is quicker, more convenient.

And it is cheaper for the banks to run.

But according to research by the Halifax, savings made by the banks are not being passed onto customers.

The research claims the four big high street banks are saving up to 85m a year through internet and telephone accounts.

The banks want customers to switch from normal banks to the internet so they can cut costs. But are they paying the right rate of interest?

The big high street players, Barclays, Lloyds, NatWest and HSBC, pay almost no interest at all.

Money in the current accounts they run earns clients interest of less than a tenth of 1%.

Yet the new online banks, such as First Direct, Cahoot or Smile, are happy to pay interest of around 5%.

Smile.  Co-op's internet bank
The customer is doing all the work themselves.

The internet banks say it is right they pay higher interest because online accounts are cheaper to run.

They do not require the expense involved in managing a chain of bank branches.

And holders of online accounts themselves do much of the admin work which bank staff undertake for holders of traditional acounts.

"So we don't need to hire staff to process those transactions and, being from the Co-op, we want to pass those savings on to the customer," says Bob Head, chief executive of Smile.

By shifting customers on to the internet, banks save millions.

Running a telephone bank account is less than half as expensive as running a normal bank account.

But the cost of running an internet account is less than one tenth that of managing a normal account

The online banks say the traditional banks are failing to pass on those savings with better interest rates.

And consumer groups say customers can make big gains by switching their current account to one that pays interest.

Louise Hanson, of the Consumer's Association, believes that "some consumers could be loosing out up to hundreds of pounds a year."

This is because consumers think it is difficult to switch their accounts, but some of the new internet banks actually offer a switching service.

The high street banks' answer to all this is that the internet should only be an EXTRA way of accessing your money, not the ONLY way.

The same customers who want their branches kept open don't yet want to put their salaries in cyberspace.

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