Do We Have Too Many Banks?
I think that the last time I met a bank manager was when I moved my account to Nationwide about ten years ago. And that was more on her account, as she wanted to try and sell me insurances and other things I didn’t need. I now do all of my banking on-line and the only time I go into a branch is to draw money out of a cashpoint. I often go in and have a sit down, so that I can put the twenty pound notes I don’t like somewhere secure in my bag. Years ago, before cashpoints, going to a bank was a much more common occurence, as you had to pay in cheques and get money out.
So do we actually need bank branches these days?
Apart from my sit downs after getting money out, I don’t! It wouldn’t matter to me, if Nationwide scrapped most of their branches, so long as they kept some major ones. In fact, I probably only use no more than four cashpoints locally. Two are the Nationwide branches at Upper Street and Moorgate, and I use a Sainsburys and a Tesco in the Essex Road. None of course charge me anything. Incidentally, why would anybody use a machine that did charge?
The ICB has now reported that the major banks should be reduced in size and that investment banking should be separated from retail. The Telegraph reckons it’s a good British compromise. Share prices in the banks have risen.
But I can’t help feeling that traditional retail banking is dead anyway, as who really wants it? Not me! So long as I have a good on-line money transfer system and access to free cash points, I’ll be happy! I hopefully won’t need another mortgage and I’ll always use Zopa and other professional companies for my savings and insurance.
King says “Bank Reforms Must Not Fail”
The headline of this post is taken from an article on the BBC web-site.
Meryn King makes a lot of good points, but on the other hand why shouldn’t banks fail? And when they do why should those behind that failure be rewarded with large bonuses?
When Northern Rock failed, we were able to rescue what was left and it is now back in the land of the living. But the managers were really criminally responsible for what they did. Did they know that the government would bail Northern Rock out, so they just didn’t care? It doesn’t matter but those irresponsible managers weren’t prosecuted. And where are they now? I bet they live comfortably in large houses somewhere, when a lot of their unfortunate employers are struggling badly in damp flats.
I should add here, that years ago I part-owned a finance company. I was worried about what would happen if something catastrophic happened to one of the principles. As its lending was basically sound, all we would have needed to do, was just run the company into the ground collecting the debts and cutting expenses to the bone to get all of our money back. I think this is what was done with Northern Rock, so when a bank goes bust, everything is not lost.
If we look at HBOS and RBS, then they should have been treated the same way as Northern Rock. But the failure of two banks in NuLabor heartlands couldn’t be allowed to happen. In the end however, Lloyds was brought into the mess to save NuLabor’s face and a good sound bank was ruined. The only things that are important in my way of thinking about banks, is that the money of innocent customers is safe and companies and individuals that need to borrow have access to funds.
In part, since the banking crisis, things have got better, as customer money is now safe, but obtaining funds for a reputable purpose has got difficult. Unless of course you have no credit rating, so you can go down the pay-day loan route and bankrupt yourself.
I suspect too, that people are now less likely to bank in countries like Iceland. Why incidentally, does the UK government have to bail out the Icelandic banks, so those greedy individuals who put their money offshore get their money back? I prefer to bank with a building society and speculate using Zopa. And with Zopa, I’m getting five or six percent by following a conservative strategy.
So King’s statement that reforms must not fail is correct, but those reforms must not ruin the banks, as NuLabor ruined Lloyds.
And those reforms must not bring companies like Zopa into the grasp of the FSA. But I suspect there will be pressure for this, as the Zopa model is low-cost for borrowers and lenders, and I can see it growing to be very large. Will the major clearing banks allow this? I doubt it and they will have the King’s ear.
Is Now the Time to Get a Zopa Loan?
One of the advantages of a Zopa is that you get the loan at a fixed-rate for three or five years. With interest rates, likely to rise in the next few months according to many, such as the Telegraph, if you have a good credit rating, could Zopa be the place to get a loan now?
After all, the great advantage is that if you cash a Zopa loan in, you don’t pay any penalties. And you can even change the repayment day, if your salary date should change say.
Zopa As A Cash Flow Smoother
As I indicated in an earlier post, I’ve had a lot of expenses over the previous few weeks, mainly concerned with Christmas and moving house.
As I have invested quite a few thousand in Zopa, over a month I get about £2,000 in repayments and interest to re-invest. But this month, I’ve borrowed some of that to avoid charges and make sure payments go in on the right day. At the end of the month, I’ll put it back into Zopa or something even better.
This is not what Zopa was intended for, but it does show how there are easy ways to avoid being charged by the enormous wunch of bankers out there.
The Alternative Annuity
The government has stated that it will be abolishing the rule on annuities that means that insurance companies chew up a large proportion of your pension in adminstration charges and incompetence. Whether they actually will abolish it is open to question, as I suspect that insurance companies will be difficult to throw off this particular gravy train.
There is an old joke, which goes something like “How do you make a small fortune?” with an answer of “Start with a large one! and give it to a financial advisor!”
I am not a financial advisor, but I’ve lost millions due to their incompetence. Don’t worry as I’ve also made millions by completely ignoring their advice! So on balance I know a good investment when I see it and a bad one, when no-one else does. I should say that I don’t invest in stocks and shares as I’m then at the mercy of a market over which I have no control. I do wish sometimes, that in the past, I’d used my technological knowledge to buy a few stocks. As an example, I told people that Alan Sugar would be a star in the early 1970s, as what do you get if you give technology to a man, who made his first money flogging car radio aerials and electronic goods from a van? But I had no money to invest when he took Amstrad public. I also met one of the founders of 3Com at Comdex in Las Vegas and thought they were a good thing! They had a tiny stand there which was probably about the size of Alan Sugar’s van.
So do I regret a life of missed opportunities? No! I’m with Piaf on this one!
Life is just a series of pauses, waiting for the next bus to come along. Luckily the buses are getting bigger, better and more comfortable.
It is two years and a couple of months, since I first put the money from C’s Porsche Boxster into Zopa. I added a bit from my pension fund and a few thousand here and there, so that now I’ve got about £50,000 invested. Not a large fortune by any means, but typical of the sort of pots many people of my age have in savings. Every month now, it repays me about £3,000 back in interest and repaid loans, which I reinvest immediately, so the pot is growing! I have had three loans go bad on me, but I’m only £350 down on them and one has even started repaying its debts.
So if you look at the sort of cash flow, you get with Zopa, it is a sum paid paid in, which gives you an income over a period of years, not unlike an annuity. But without all the charges!
So does a retirement financial strategy go something like this. As you approach retirement, you put a small sum into Zopa, so that you get comfortable with the concept. Then as you get happier, you transfer your money accordingly. There is one problem with Zopa though; that is that it is not liked by financial advisers. After all where’s the commission? If they are Zopa investors themselves they may get a bullseye, if they introduce a new investor, but that’s not going to make anybody rich.
Zopa though will be followed by other imitators. Some will be better, but the ones I’ve seen so far are not, often because they have tried to accommodate the dreaded financial adviser.
Getting Out of Zopa
I’ve got about £50,000 of my money invested in Zopa. Most of it came from the sale of C’s Porsche Boxster, an upfront pension payment and lots of small payments when I’ve found that I’ve some money to spare. I’m now moving house and might need some money to buy bits of furniture, as not everything I’ve got here will fit.
I could use Zopa‘s standard method of getting out called Rapid Return, which I discussed here, but why should I give others the benefit of my good payers?
So out of curiosity I added up how much money was returned to me in the thirty days of November! It was £2,600. My statistics don’t tell me at present how many loans were repaid early in that time, so I can’t be sure if I’ll get this figure back each month.
But it does illustrate that if you want to invest a sum for say three years or longer, then Zopa might be a place to consider! Provided of course that you understand fully what you are doing!
By any measure, though I’m getting more than I would if I’d invested it with any of the reputable wunch of bankers! Here‘s what Lloyds TSB offer.
The other problem with a bank, is that doing business with them isn’t any fun at all. With Zopa you can play the rates to lend your money for either more interest or better clients.
My First Second-Hand Loan on Zopa
I said a few weeks ago, that Zopa had introduced a get out method called Rapid Return.
Today I acquired my first second-hand loan. So it was only £30, but I did lend it at a rate half-a-percent higher than my minimum rate.
So it would appear that for other borrowers it might be a good thing, as you get a chance to pick up safe loans at a good rate.
A Wonga Moment
I first became aware of Wonga, the on-line lender, a couple of years ago at an on-line awards ceremony. It didn’t win, and I can remember telling a lot of people at the time, that I didn’t think it was very ethical or even legal, as it charged a very high rate of interest for small sums. I think I even asked the guy doing the presentation a question on this basis, but I can’t be sure.
I’d hoped that the businesss had gone to the dogs, as I didn’t like it, but I now know it hasn’t, as it adorns the shirts of Blackpool FC. And then on the train to Norwich this morning, I saw the headline, What ‘pay day’ lender Wonga’s television advertisements fail to dwell on: 2,689% APR , in the Mail on Sunday, being read by the guy next door.
In other words, they charge hundreds of times more than my preferred on-line lender, Zopa.
I have no experience of using them, but the Mail has a fairly worried tone about the company. I would suggest that before you use Wonga, you read their article and discuss it with someone who knows finance better than I do!
I also write this from experience of being a partner in a finance company and the sometime holder of a Consumer Credit Licence. I also once had a business card that amongst the things I did, said. “Loans Sharked”
Wonga though might have a postive side. When there is a general awareness of how much they are being charged by some of the highly-advertised finance companies, people may actually realise that there are other and much better ways of getting their finances in order.
A Zopa Surprise
I have three Zopa loans that have gone bad and have been written off. They have cost me £340.48 against total interest paid of pver £5,000. So it’s not too bad really.
Imagine my surprise when I found that after twelve months of no payments, one of these dead loans credited me with three pounds. So there is some life there!
Is Zopa Getting Too Popular With Lenders?
I keep fairly detailed statistics of my lending on Zopa, so I am able to discern trends fairly quickly. I usually set my rate so that money will be lent out at a Medium speed, which usually means that I lend at a rate between of 7 and 8 percent, with a very low risk of default. Out of the well over 2,000 contracts I’ve lent, only three have gone to default, which is a default rate of just 0.13% by contracts and 0.07% in terms of money.
So I think I’ve got a safe philosophy. But who knows?
However, there is a trend that has started to be noticeable this month.
Zopa allows you to find how much money is wanted by clients and how much is available at all times. Obviously to get a good lending speed to clients, the amount of money on offer should be higher than that demanded. At the start of the month the ratio of Money Offered over Demand was about 2, but it has since risen to over 3.
The reason is obvious as in that time the money on offer has risen from about £15M to £20M.
As every action has an equal and opposite reaction, the extra money has forced the rates that borrowed have to pay down by about half a percent.
So I am now not getting as good a return as I was in the past. But I’m not bothered as the money is much safer than it was in an Icelandic Bank and my returns overall are upwards of five percent, which is above the High Street.
I think though the corollary of this, is that if you need a few thousand to buy a car and you have a good credit rating, then Zopa will be a better place to borrow.
Don’t believe me, but read this article in the Daily Mail about a lady, who wanted £5,000 for a car!
The Anonymous Widower 