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 96.

    If we all kept our accounts in credit and never went overdrawn then the Banks would have to charge us.

    Fortunately there are people around who are unable to do this and they subsidise the rest of us.

    I'd happily pay a "new" local Bank to look after my money as the multi national "beasts" we have are NOT interested in the average UK bank account owner

  • rate this

    Comment number 95.

    If I use a current account wisely, not going overdrawn etc, the banks can`t charge me, they won`t make out of me, from upfront or hidden fees..

    I forego interest..

    They however have countless millions of customers money at their disposal to trade on the markets, making a profit, that I don`t see

    They now argue..they want a cherry for their cake, monthly standard charges ?

    PAH !

  • rate this

    Comment number 94.

    No, banking is not free. WE are not free.

  • rate this

    Comment number 93.

    My bank HBOS, yes I know get out quick. I had a payment out £100 and a payment in £1000 same day, payment out was prior to the one in and made me overdrawn, they left this transaction showing an overdraft and have notified me of the £1 charge, I will be at my local branch this weekend demanding a refund. Don't phone HBOS, they transfer you to a high charge phone number without any notification.

  • rate this

    Comment number 92.

    You are living in cloud-cuckoo-land if you ever thought that you could get something for nothing.

    Banking is and has never been free...we have to pay for the service they provide just as we pay for any service.

    Also it amazes me that people feel aggreived when they are charged for failing to pay off credit card, overdrafts and other unofficial borrowing.

  • rate this

    Comment number 91.

    Do we get a choice which banks we bail out?

  • rate this

    Comment number 90.

    Having worked in banks for a long time John Howard is spot on. Customers are not told of 'free' accounts and sold accounts with charges and 'benefits' as staff have targets. Banks see acccounts as loss leaders to cross sell credit cards/personal loans/overdrafts/home insurance/expensive life cover/investments/Mortgages. Pensioners & foreign students in the UK are favourite targets, easily confused

  • rate this

    Comment number 89.

    the reason the country is in the mess it is, that we all borrowed too much and when everything went pear shape we all blamed the bad bankers.
    if the country is to recover we need to pay up and that includes charges and interest, we must learn to balance our personal finances

  • rate this

    Comment number 88.

    Never had a charged for account, never been charged because I've overdrawn. If my current banks tried it on, I'd be off elsewhere quickish.

  • rate this

    Comment number 87.

    The media coverage of this seems to be really distorted and overblown (although there is some important stuff in the which story).

    They say it is the fault of 24/7 news and the desperation for things to report round the clock, but I think it is just misleading, lazy and sensational reporting.

    Let's get back to hard hitting evidence based decent news coverage please.

  • rate this

    Comment number 86.

    Swing Lowe
    Why do we think we can use the banks money for free,

    .....because they seem to think they can use my money for free and then charge me if I want some of my OWN money back.

  • rate this

    Comment number 85.

    HSBC building or Barclays building?

    Which would be better for chucking the bankers and politicians from when the revolution comes?? :-D

  • rate this

    Comment number 84.

    I have banked with Lloyds for 49 years and have had very few problems,certainly no charges,I hope it stays that way.

  • rate this

    Comment number 83.

    I am under no illusions about banks and their 'hidden' charges for current accounts, but if you organise your banking prudently you don't need to pay any charges or forego too much interest. Rather the 'status quo' than having to pay an upfront charge to subsidise those who are not prudent with their money.

  • rate this

    Comment number 82.

    Come on!
    'Free' banking is a very good deal.
    The bank is not offering to manage our money for us, that's our responsibility.
    It doesn't matter whether overdrawing happens by mistake or by poverty, there's a price to be paid for taking someones money without permission.
    Borrow without permission, expensive.
    Borrow with permission, there will be a charge, so choose your a/c carefully.

  • rate this

    Comment number 81.

    What is it with the British public? Allowing banks to fantasize to the idea that they give you a free banking service? They are damned lucky to be in bussiness to give any service whatsoever! As if it were NOT for the TAXPAYER these city spivs would be bankrupt. I am sick of the endless smokescreen from this diabolical gov't BoE & the banking system They seem to treat everyone with utter contempt!

  • rate this

    Comment number 80.

    'But the British Bankers' Association (BBA) called the report "disingenuous", '

    If there is a more partisan or less trustworthy trade cabal than the British Bankers Associaciation, I've yet to here from it.

    As far as I can tell their main function is to act as a shield which the real bankers hide behide so that they don't have to deal with the media directley themselves.

  • rate this

    Comment number 79.

    BMT. The banks have such a product. Its called a Basic Bank account, allows benefits to be credited, DDs to be set up and no overdraft facilities

  • rate this

    Comment number 78.

    I know by forgoing interest on my credit balance I am in effect paying the cost of my current account. I work in IT in banking and so know the realistic cost. And decades ago, I used to go overdrawn and get bank charges, but that was my own fault, and those charges taught me a lesson to mange money better. I do not want a set charge and do not require the "extras" banks add to charged accounts.

  • rate this

    Comment number 77.

    Banks are there for one thing and one thing ONLY and that is to make as much money as possible for the share holders. Anyone foolish enough to think they are there to HELP with one's debt difficulties is a complete and utter dumbask. It's folk like you that are in debt that MAKE the money for the banks. NOT the wealthy!


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