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 56.

    Even if you're not currently charged for your bank account, banks are still making lots of money from you, via the taxation system.

  • rate this

    Comment number 55.

    There is an answer: Charge imposed by bank must be clearly documented in language normally-intelligent person can understand & with a size of print that average-sighted person can read. If after going home, fully considering, & having opportunity to pose questions, client decides, s/he wants the products, only then does s/he sign the paper - with thrity day period to rescind.

  • rate this

    Comment number 54.

    #50 I moved from Barclays to Lloyds for that reason... Barclays were taking 7 to 8 days to clear some cheques then crediting them to my account 1 minute after my rent went out then hitting me with fees. Lloyds have never done much for me but they've never screwed up either & I've never paid a penalty fee with them in 15 years. Based on most bank performance thats not half bad.

  • rate this

    Comment number 53.

    The banks are kidding themselves on if they are tyring to justify charges by saying that they are entitled to make money from you in this way. They make money from the money in your account. I do not pay for a current account, if it became mandatory, I would leave my bank and go elsewhere. What annoys me is that the govt stand back and let everyone rip us off. They are vile.

  • rate this

    Comment number 52.

    @48 Peter_Sym

    I am forced to agree with you - the travel insurance policy that I had recieved in a bundled account was virtually worthless. Soooo many "get out of jail free" type clauses for the bank.

    @ 43 - I hope that your bank is the exception, but I would check the small print before you go to Canada. I hope you never need to use it, but best check before you need it.

  • rate this

    Comment number 51.

    Would anyone like to comment on my comment @40 please.

    Thank you in advance.

  • rate this

    Comment number 50.


    Barclays & some other's don't clear cheques. I wouldnt touch Lloyds TSB every again its ashame the where bailed out as I would of loved to see the silly bankers get made redundant and see themselves having to sell there home, then they might grow a heart and stop lying

  • rate this

    Comment number 49.

    Which bit of "You Stay in Credit, you avoid Bank Charges, you go overdrawn you get clobbered" does John Howard not understand.

    Simple Stay in Credit

  • rate this

    Comment number 48.

    #43 Check the small print. My bank keeps trying to get me to sign up for that deal too. The breakdown insurance is almost useless (no homestart) and the travel insurance only covers the first name on the account (my wife because she opened it) not the second name (me). Yours maybe less of a scam than mine (that account is with the Halifax) but I'm sceptical.

    #39 Lloyds credit cheques immediately

  • rate this

    Comment number 47.

    Although I haven't gone overdrawn in years, I agree that the way most banks handle it is disgraceful.

    It would be OK If banks just charged a realistic rate of interest for both the amount & duration, but to also charge fixed fee penalties is a rip off.

    Most unauthorised overdrafts are fairly trivial amounts for short spaces of time, so excessive charges are just cynical exploitation of misery!

  • rate this

    Comment number 46.

    Banks do nothing for nothing.

    They are similar to blood sucking leaches.

    Except without the fine sense of moral justification, good looks and benign outlook.

  • rate this

    Comment number 45.

    TThe bank in QUESTION was one of the SO CALLED big 4.I will not be banKING with any of them ever again.DIRECT DEBIT too my NOT WANTED OVERdraft.They manipulate PEOPLE in to this.THE DIRECT DEBIT phenomenon Is CORRUPTION of the highest ORDER.

  • rate this

    Comment number 44.

    Didn't you cover this a week ago beeb?
    Anyway there are no bank charges, they seem to have got away with everything scott free.

  • rate this

    Comment number 43.

    I pay £20 per month for one of my acounts, but that gives me holiday insurance, breakdown cover, overdrafts fees, phone insurance and many other benefits. We are about to go to Canada for three weeks which would cost almost that much in insurance. Colliion Damage Waiver excess cover too would be nice.

  • rate this

    Comment number 42.

    If the banks want to charge for having an account that's ok by me as long as that bank is going to pay a competitive rate of interest for the use of my money for their short term loans, that account for a big % of their profits, which would only be fair after all they would very quickly start charging if I went overdrawn, on top of the account charge.

  • rate this

    Comment number 41.

    Banks love to give you/us overdrafts,even if we don't want them.I know I've been their and yes I told them I did not want an OVERDRAFT.The banks created my debts through this and then BOMBARDED me with Loan Ads.

    More fool you. You didn't have to use the facility or utilise the Loan Ads. I have had an overdraft facility for over 40 years but never used it.

  • rate this

    Comment number 40.

    Do what the Aussies do, have a basic charge on all our accounts of £3 a month, charge people for using other banks ATM’s 30 / 50p unless as with Westpac in Aus, you have a Sister Bank. Have industry wide charges set by the regulator, with a 24 / 48 hour grace period to prevent customers being charged, this is fair to all, it would also kill off those rip off £1.50+ privately owned ATM’s

  • rate this

    Comment number 39.

    banks should look at there general practice, you pay a cheque into your account, still takes 3/5 working days, you pay with your debt card, again its not updated on your account sometimes for several days, some branches still closed on saturdays.nothing changed in decades and the banks still in the ice age even with todays modern techology. its time they actually listen to customers

  • rate this

    Comment number 38.

    My bank gives me an overdraft on my current account - if I use it, I have to pay for it. If I don't, no charges!

    I've been in debt before, started the month in debt, finished it further in debt with charges getting higher & higher, it really was crippling.
    My only advice would be if you don't have it don't spend it & credit cards that aren't paid of monthly are for mugs.

  • rate this

    Comment number 37.

    #32 Calling an unauthorised overdraft 'theft' is a ridiculous exaggeration. The bank allows you to run over your overdraft limit by providing the means to do so. My student account had an overdraft limit of £600 and at £600 in the red my cash card wouldn't swipe or work in ATM's. If the banks want to stop you exceeding your limit they can easily (cheques and DDs can bounce too)


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