Banks To Pay Instant Interest On Cheques
The beleaguered cheque received some welcomed news when Lloyds TSB became the first British bank to pay interest on cheques as soon as they are paid into personal accounts.
Added to this, Lloyds TSB customers will also be able to gain instant access to funds paid in by cheque, with a limit of £1,000 day. Customers who have an overdraft will be able to reduce the amount of interest they are paying as soon as the cheque is paid in.
The move was primarily prompted by the results of research carried out by the bank that found 90% of customers were unhappy that when they paid in cheques they still accrued overdraft interest whilst waiting for the cheque to clear.
The bank’s survey also revealed that 60% wrongly believed banks made a profit by holding onto their money as cheques underwent the clearing process.
The bank estimates that the move, in conjunction with its decision 18 months ago to pay interest on electronic transfers during the period it takes for them to clear the system, will lead to customers receiving an average of 150 extra days of annual interest.
However, the bank’s standard current account pays a paltry 0.1% interest. Lloyds TSB’s Classic Plus account pays 4%AER on balances of up to £5,000, however customers must deposit a minimum of £1,000 a month into the account.
“ Customers feel cheated when they pay in a cheque and don’t earn interest straight away. From this week, our customers stand to earn over 150 days more interest a year,” said Terri Dial, Group Executive Director of UK Retail Banking.
Last year, Lloyds TSB customers paid into their accounts 55m cheques worth £32 billion.
Although HSBC introduced instant interest on electronic payments a year ago, it still has a three-day clearing period for cheques, thus denying customers interest that could’ve been earned from those days.
Despite having a five-day clearance period for cheques, Barclays said that for the past eight years its customers have had immediate access to cheques up to the value of £1,000 as well as being able to use those funds to reduce overdrafts instantly. However, they do not pay interest on deposited cheques until they have cleared.
The announcement from Lloyds TSB comes at a time when the number of cheques written continues to dwindle. According to APACS (the UK payments association), in the UK 6m cheques were issued every day in 2004 compared with 22.8m credit and debit card transactions.
Alisdair Milton
27/4/06
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