Another nail in the coffin for cheques
HSBC is cutting its cheque guarantee limits from £250 to £100, in yet another sign that this payment method is fast becoming extinct.
The move follows major retailers, including Tesco and Marks & Spencer, scrapping the use of personal cheques. HSBC says that while customers will still be able to write cheques for more than £100, payments above this amount that require the use of their cheque guarantee card will not be permitted.
This means that cheques over £100 won’t be covered by the card’s guarantee and could bounce if there isn’t enough cash in a current account to cover it.
The bank says it has decided to reduce the cheque guarantee because its customers are simply not using this function. In addition, it says this will also help reduce fraud and overindebtedness.
Money spent on personal cheques, which are 350 years old this year, is drawn directly from the shopper’s current account. However, because they take several days to clear, cheques are often seen as way to bridge the gap between making purchases and when the funds are available – before pay-day for example.
Tim Pie, spokesman for HSBC, says it has some concerns that customers are making purchases using cheques when they don’t have the money in their current account or overdraft.
“This is not a huge issue - we don't have thousands of customers misusing their cheque guarantee cards - but we do want to ensure that, should a customer be in financial difficult, they are not going to make things worse for themselves,” he adds.
HSBC recently made the switch from Maestro debit cards to Visa debit, and at the time changed its terms and conditions to allow it to reduce or even completely remove cheque guarantee limits.
It estimates the reduction will impact around 3% of its 10 million current account customers. However, Premier account customers will be entitled to retain their £250 cheque guarantee.
According to APACS, the UK payments association, just over 4.4 million cheques were issued each day in 2007, compared to a peak of 11 million in 1990. By 2017 it estimates there will only be two million per day.
However, its figures also show the average value of a personal cheque payment is £226.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.