Back in 1999 internet banking was in its infancy, and at the forefront of the push into web-based money management was Smile, the bright and breezy online arm of the Co-op. It launched at the end of October that year with the best-buy current account on the market, paying a dazzling 4.25% for balances in credit and charging a relatively low 9.9% on overdrafts.
At the time it was seen as revolutionary, sticking a boot into those high street baddies who were mostly paying a measly 0.1%. It said it could offer such competitive rates of interest because it was online only and didn't have the overheads other banks were forking out for. I signed up.
Fast forward 13 years and it's all gone a bit wrong for Smile and its customers. The bank has just emailed us all to say that from 6 August 2012, for the first time in its history, it will pay no interest on any money held in its three current accounts – the standard Smile account, Smile Student and its fee-charging account Smilemore. Its overdraft rates will also be going up on those accounts, in most cases from 15.9% AER to 18.9% AER.
So what has happened to the bank that was meant to offer something different? Of course, the interest rate environment has changed dramatically since Smile launched. Back then the base rate was 5.5%, now it is 0.5%. And Smile is making its cut from an already paltry 0.12% so customers may barely notice the difference. Other bank's current accounts are also offering paltry rates.
A spokeswoman for Smile says its accounts "regularly top tables for providing excellent customer service. Our existing customers also benefit from preferential rates across a number of our other products". And, she adds, "the scrapping of in-credit interest brings these accounts in line with those available through the Co-operative Bank".
So much for customers benefiting financially from the lower overheads of running an internet bank. Shouldn't it be offering a little more to its customers at a time when there is a feeling of frustration with the bigger name banks? And why cut an already paltry rate to nothing and up borrowing rates when nothing has changed with the base rate?
