High bank charges challenged by Which?

Cash machine Which? says charges should not be introduced for all current accounts

There are large variations between banks in the cost of "free" current accounts, consumer group Which? says.

Which? says that its analysis "shatters the myth" of free banking.

It says the cost of going overdrawn without permission for two days a month costs from £120 to £900 a year.

But the British Bankers' Association (BBA) called the report "disingenuous", and said customers could get free banking for accessing cash and making most types of transactions in the UK.


Which? says that even customers with authorised overdrafts can run up large charges at some banks, including RBS Natwest and HSBC, charging an annual percentage rate (APR) of 19.9%.

Start Quote

It does encourage banks to cross-sell other products and in some cases far too eagerly and we have had too many instances of mis-selling”

End Quote John Howard Former chairman of the FSA's consumer panel

The group says that banks also make money from ostensibly "free" accounts by charging "hefty fees" for overseas transactions.

When Which? asked more than 2,000 consumers how they felt, it says that more than 60% of those surveyed said they had paid a bank charge that they thought was "unfair, hidden or disproportionate".

The marketing concept of "free banking" was first introduced by the then Midland bank (now part of HSBC) back in the 1980s.

It was rapidly adopted by all its rivals, so most current account customers do not normally pay a monthly fee or a charge for every payment in or out of their accounts - so long as they are in the black.

However it has been pointed out for many years by the Competition Commission, the Office of Fair Trading (OFT), the Financial Services Authority (FSA), and the Independent Commission on Banking, that the term "free" is misleading.

That is because customers still pay a price for the service they receive, either by way of very high overdraft fees, or by foregoing any interest that they might otherwise be offered on the money in their current accounts.

John Howard, who used to chair the consumer panel at the FSA, told the BBC that regulators believe so-called "free banking" has been a bad policy for the banks to pursue.

"Customers don't know what the real cost of providing that basic banking service is," he said.

"It makes it more difficult for new banks to enter the market place because it is a very difficult thing for new banks to set up and match this free-banking-if-in-credit offer.

"And it does encourage banks to cross-sell other products, in some cases far too eagerly, and we have had too many instances of mis-selling," he added.

Marketing gimmick

In the past few years banks have introduced so-called "packaged" accounts, where customers do pay a monthly fee, sometimes more than £25 per month, in return for extra services such as cheap travel insurance.

About 20% of UK current accounts are now thought to be of this variety.

Which? chief executive Peter Vicary-Smith said that this should not become the standard way for customers to pay.

He added that it might be illegal for banks to agree amongst each other to introduce standard account charges for all customers.

"It's a disgrace that the very people who bailed out the banks are being asked to pay more for the most basic accounts, while the industry continues to be rocked by scandals like PPI mis-selling, Libor rate-rigging and IT failures," he said.

The BBA said customers could avoid charges by not going overdrawn, which is a form of borrowing for which it is quite legitimate to charge.

And it insisted customers could have free banking.

"All banks publish a clear tariff of charges on their websites and provide customers with an annual summary of the transactions passing through their account including a breakdown of any interest and other charges," it said.

"If a customer wants to switch to another bank it's easy to do so and the industry is working towards making the process even easier."

In 2009, the OFT lost a two-year-long legal battle to regulate bank overdraft charges.

However, the regulator has continued to criticise the banking industry.

Last month, it said it would carry out a formal check-up on the way that banks treat their personal current account customers.

It threatened to refer the industry to the Competition Commission for a full enquiry unless it found evidence that banks were making it easier for people to switch accounts and to understand their overdraft charges.


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  • rate this

    Comment number 36.

    There is no such thing as a 'free' bank account. If you owe money you pay, if you save money they make their fees from lending out your cash at high interest and trousering the vast majority of it.

    Go to Zopa and cut out funding the lifestyles of dodgy men in suits.

  • rate this

    Comment number 35.

    16.Cnut the not so Great
    ..For personal Banking, my preference would be charges for everyone, and a free overdraft facility for everyone.

    I do not agree - why should I pay charges for my current account when I never go overdrawn. Basically you want me and many others to pay your overdraft charges for you.

  • rate this

    Comment number 34.

    32.RJD - would you expect the rest of us to cover your debt when you default?

    You mean like us the tax payer bailing the likes of Lloyds TSB to tune of Billions ££, I dont know how banks can leture the public on how we spend our money when the where even worse

  • rate this

    Comment number 33.

    #27 InGoldITrust

    That doesn't work either - they charge for rejected transactions

  • rate this

    Comment number 32.

    22. @HaveIGotThatWrong

    "If you go overdrawn, what does that actually cost the bank ? Nothing - so what service are they charging for ? None."

    You'll find that you spent money that isn't yours without authority (theft?). Whilst the penalties are high they are not unjustified - or would you expect the rest of us to cover your debt when you default?

    27. @In Gold I Trust

  • rate this

    Comment number 31.

    I am really tired of signing up to an account with decent interest to find the interest is down to 0.00001% by the next year and I'd have to move my money to their new account which is the new version of the same thing to carry on gaining interest.

    This childish game of constantly pulling the floor out underneath you by banks has to end, it's ridiculous. The banks have no integrity.

  • rate this

    Comment number 30.

    You have to play the Banks at their own game. I always make sure there is enough money in my current account so that I don't go overdrawn when direct debits etc are taken out. If you don't go overdrawn you don't get those charges. Also you have to look out for special offers on savings accounts, and as soon as the offer is finished move your money to a new account or even a new Bank.

  • rate this

    Comment number 29.

    Never seen the FreeBee with the Charge for Account to be worth anything like what the banks claim they are worth.

    Yes I know bank charges are there & kick MYSELF not the bank when I incur them. Most months charge free.

    SIMPLE to avoid bank charges don't spend money you don't own

  • rate this

    Comment number 28.

    Back in the early 1980s, my husband was still paid in cash, using a weekly wage packet. We were made (by Governments/employers) to use the banks by having our wages paid into an account - we had no choice. For the banks to demand that we pay for current accounts, or to make us feel how lucky we are, that we don't have to pay for a current account and its services, is disgraceful. No-one remember?

  • rate this

    Comment number 27.

    The charging on overdrafts really is money for old rope. It'd be far better if you could specify no overdraft at all, ever, please reject all my transactions, instead.

    Can anyone name any banks that offer that facility?

  • rate this

    Comment number 26.

    For what its worth I wouldnt trust a single bank ever after the experience I had with Lloyds TSB, they proved to be just out for making a profit through peoples misfortunte when they get made redundant and it gets hard to pay all you bills, what do they do? they heap more charges on the charges you already owe.. Free Banking yeah right! beleive that and you believe anything

  • rate this

    Comment number 25.

    For 20 years I had an account at HSBC which was free as long as kept a certain amount (on average) in it. They then changed it to a monthly fee but included "packaged benefits" that were no use to me. I moved to Smile 5 years ago and have been very happy.

    If you do not like the service and the price at your current bank, change banks because they rely on your apathy

  • rate this

    Comment number 24.

    With interest rates at as good as zero,I do not care if the small amount of money kept in my current account gets no interest,this is a small price to pay for the rest that is NOT charged to me.
    The real scandel is the huge difference between the borrowing and deposit interests.

  • rate this

    Comment number 23.

    Any money in my current account does not accrue any interest. Therefore the bank can profit from it 100%.

    For the privilege of enabling the bank to use this money for their own profit I expect the courtesy of an efficient, free current account.

    If I do not get it I will go to a bank that will supply such an account. Competitive forces and demand will mould this market.

  • rate this

    Comment number 22.

    Which?'s report focuses on "charges" for things like going overdrawn when not authorised.

    But, these are not "charges", these are "fines". If you go overdrawn, what does that actually cost the bank ? Nothing - so what service are they charging for ? None.

    If the banks used the word "fine" at least they would be being honest for a change. But an honest bank - that will be the day !

  • rate this

    Comment number 21.

    The british public, in general, are lazy they will pick the best offer at face value and sign in the box without understanding the costs. The banks know this and take advantage of our laziness by making great face value offers - read the small print!!!.
    If the banks weren't pandering to out love of "getting something for nothing" we'd have clear paid for accounts the same as overseas.

  • rate this

    Comment number 20.


    THEY used the overdraft that I did not want,Too and I repeat TOO.Charge me X amount for using afore mentioned overdraft facility!!!REMEMBER,Said I did not want it,lol.You seem a TAD confused on that.R U a BANker???

  • rate this

    Comment number 19.

    Dear Mr Banker,

    Your account has been found to be overdrawn to the amount of £450 billion. You do not have a prearranged overdraft facility and as a result your are liable for charges of £50 bn per day. We would be grateful if you would rectify the situation immediately or we will be forced to withdraw your account facility and take legal action to recover the arrears. Yours the UK taxpayer.

  • rate this

    Comment number 18.

    I bet nobody on here does anything for free, so why should the banks.?..if you dont like it bank where it is free...the po is free and they pay reasonable interest.

  • rate this

    Comment number 17.

    Turn your surplus cash to gold, keeping enough cash ready to take you to your next pay check. It seems to me, you just have to be slightly intelligent over your money to avoid paying for it, even abroad.


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