Getting an accurate fix on Rabodirect penalties

Q

I was looking at opening a term deposit account with Rabodirect but I was concerned that I couldn’t find any information on penalties on early withdrawal. So I e-mailed them and this is the response I got: “Penalties are calculated on a case-by-case basis, taking into account the length of time which the funds have been on deposit, what time is left on the term deposit and the current term deposit rates.”

I phoned and asked was there a cap to the charges. The customer care representative just gave me the same reply.

I think it is mind-boggling, after all that has happened with the banks, that they can sell a product with no printed terms detailing penalties. I did ask for a paper or e-mail copy and I was told there was none. Surely this cannot be the standard for a triple A-rated bank?

- Mr DO’S, e-mail

A

Oh dear. On the basis of your experience, it sounds as though Rabodirect needs to tweak its customer care service.

To be fair, when I contacted the bank, they were able to provide enlightenment.

If you avail of a 10-year fixed term deposit at a rate of, say, 3.5 per cent and later need to withdraw the money early, the bank will look at the rate available on the 10-year product being offered at the time you want to withdraw your funds.

If it is, say, 4 per cent, the bank will charge you the half percentage point difference on the funds you are withdrawing.

Of course, if the interest rate is lower, say 3 per cent, you pay nothing.

The bank was keen to stress that this “funding charge loss” is the only penalty incurred for breaking a fixed-term contract and points to breaking fees or fines which it says other financial institutions impose.

Should I have to pay bank’s legal fees?

Q

I am buying a property through AIB. I have a solicitor but now AIB tells me they want to charge me a €1,000 fee for their solicitor. Is that correct? I have never heard of a bank charging a mortgage customer for the bank’s solicitor.

- Mr PK, e-mail

A

Traditionally, banks did charge mortgage customers the bank’s legal costs but, like many things, the practice disappeared during the property boom.

Last July, the council of the Law Society prohibited solicitors from giving undertakings to lenders on behalf of clients in commercial property transactions. This was given legal force in Statutory Instrument 366 of 2010, which came into force on December 1st last.

Essentially, until then, it had become standard practice for the applicant’s solicitor to act both for the customer and the bank. Now the bank must hire its own solicitor and it passes on that cost. This is not unique to AIB as SI366 covers all lenders.

Commercial property transactions, as defined in the statutory instrument, include pretty much anything other than buying a home as an owner occupier. Investment properties and land purchases are seen as commercial.

All of which is not much comfort. You could suggest to your own lawyer that he lower his/her fees by the €1,000 to reflect the fact that they no longer have to work for the bank as well in the transaction.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com