Data released by the Bank of Israel yesterday taught us that suckers never die, they just get replaced. This time, we are talking about ourselves, the private customers, the households, which pay the highest interest rates to the banks, and get the lowest rates on our deposits. While this interest rate differential between what is paid on credit and what is received on deposit reaches 7.5 percent for households, the gap for commercial companies is only 3.8 percent.
The explanation lies in the lack of private customers' bargaining ability. Most manage all their affairs through only one bank, thus becoming "captive customers" as they put away their monthly savings, pay through direct debits, have their apartments mortgaged and their pension funds managed all with the same bank. It is thus very difficult to switch to another bank. On the other hand, companies work with several banks at the same time, with alternatives to bank credit - such as raising funds on the stock exchange or taking credit lines from overseas. The banks are forced to compete and they cut their interest rates to do so.
In the case of households, they are not in a hurry to put their salaries into interest- paying deposit accounts, leaving their money in current accounts that do not pay interest, which helps widen the gap between debit and credit. Two of the big banks, Leumi and Hapoalim, which control accounts for most of the wage earners in Israel, make the most of this phenomenon. Victor Medina, president and CEO of United Mizrahi Bank, tried to cream off some of this by offering to pay interest on current accounts, something that is common practice across the U.S.
In Israel we also suffer from a lack of faith in banks. What if we go over to Mizrahi, and in another year's time, they stop paying interest on the current accounts? This reminds us of the credit card scandal. When First International's Alpha Card entered the market five years ago, it stirred up a great brouhaha in the sector, drawing large numbers of clients away from the big banks by promising not to charge membership dues. Visa and Isracard were forced to give up on their membership charges. Two years ago, Alpha Card closed and membership fees are back big time, but in another guise; monthly handling charges and credit commissions. The banks now profit four times over; first on the handling charges; second, on the credit commission; third, on the credit that the business takes and fourth, on the charges that the business pays.
The three credit card companies have returned to their cartel style of business and have stopped competing among themselves. They do not even bother to poach clients from other banks, just from their own banks. They even introduced the new charges at almost the same time. And who will pay these old-new charges? Yes, of course, the little guy.
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