Has Tesco signalled the end of the free current account?

Tesco bank

Tesco has taken a major step towards the ending of free in-credit banking, a mainstay of the High Street banks which many argue leads to obfuscation about costs.

Because High Street banks do not charge customers directly for their current accounts - critics say - they load on charges elsewhere, such as on overdrafts, or are obliged to sell additional products to their customers (and look where PPI ended up).

Free accounts, though, are at least universally available.

Tesco Bank's £5 a month charge for those who deposit less than £750 a month in their account sends a clear signal about the type of customer the retailer wants. Low-risk Tesco shoppers - rewarded with Clubcard points - who are in employment with a regular income.

What it says about access to banking for those who don't fit that mould is another matter.

Quoted by Mail Online this morning, Neil Duncan Jordan of the National Pensioners Convention, said: "This doesn't sound very pensioner friendly.

"It will exclude older pensioners on lower incomes - many of whom rely on the basic state pension which doesn't come close to the £750 a month required.

"There is also the online issue.

"The older you get the less likely you are to be connected to the internet and the less money you are likely to have."

Tesco says that a clear charge gets rid of the "smoke and mirrors" of banking. It costs banks to provide accounts to those who don't deposit any money in them but simply use it for transactions. This is all about transparency, the chief executive, Benny Higgins, argues.

Sir David Walker, the chairman of Barclays, is also sympathetic to the idea of charging for accounts.

Consumer group Which? has welcomed Tesco's new account, again on the basis that its fees are clear and that the major High Street banks need major challengers. Richard Lloyd of Which? said: "This new Tesco account is likely to appeal to the many customers fed up with shoddy service elsewhere."

Certainly with its High Street muscle and six million customers who already use the bank for savings and mortgages, Tesco's entry into the current account market will concern the big four banks as well as Nationwide which between them control the vast majority of the market.

In comparison, Metro Bank and Virgin Money (which took over the better bits of Northern Rock) are relatively small.

Many will argue that Tesco has every right to encourage a certain type of customer to bank with it. But if every bank follows suit on the issue of fees for current accounts it raises serious questions about who banking is for.

Kamal Ahmed Article written by Kamal Ahmed Kamal Ahmed Business editor

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  • rate this

    Comment number 13.

    Entry number 4 by bobajob. seems to me this contributor thinks that we are getting a very fair and reasonable service from banks... look at the interest rate on current accounts, their charges for overdrafts etc, and then the rates they are giving on ISA's etc. I suggest they need to be brought to heel about some of their practices, doubtful if this Government dare to try. robbers. .

  • rate this

    Comment number 12.

    Strange article. I'm not sure how Tesco launching a really rubbish current account is going to cause major ripples in the wider banking sector.

    If the major banks want to bring in standing charges then they will soon find many depositors moving on to banks who don't charge.

    Also, is it really free when banks hold your money interest free (or with minimal interest applied)?

  • rate this

    Comment number 11.

    Every Little helps! Why don't we hit the low wages earners and pensioners even more. You have to have an account as many services we pay for no longer deal in cash. As for costs you are not telling me that the cost of transaction for the average account holder who stays in credit outstrips the profit that banks make on such money.

    This is just banking greed on a captured market.

  • rate this

    Comment number 10.

    It's a trial. The other banks will be watching with (ahem) interest.

    Aside from the social concerns already highlighted, it seems reasonable to point out that life without a bank account is essentially impossible. Trapped markets are open to exploitation, and it is to the credit of our banks (so far) that that has not happened.

  • rate this

    Comment number 9.

    I'm not fan of bankers. I'm no fan of Tescos either.

    The fact that Tesco want to become a bank seems entirely logical.

    Tesco Bankers.

  • rate this

    Comment number 8.

    with first direct, you have to pay in a £1k a month so its not new
    quite a few require you to pay in x per month to get something, a £5 with Halifax/HBOS, i9nterest with others

  • rate this

    Comment number 7.

    Has Tesco signalled the end of the free current account?


    Only for the poor it seems.

  • rate this

    Comment number 6.

    Too big to fail. Plans for a huge bailout come the next global economic crisis? This isn't about customers, it's about profits. Got to be in it to win it.

  • rate this

    Comment number 5.

    I have my doubts about free banking ending for those with healthy deposits in current accounts in the context of probably increases in interest rates in the medium term.
    Even if bank rate only went up to 2% banks would be quids in with "free" banking for those with a few thousand in their accounts.

  • rate this

    Comment number 4.

    cost have to be covered - you cant expect someone to look after you dosh for nowt.

    The alternative is to do it yourself.

  • rate this

    Comment number 3.

    I can see how something such as might emerge, but this will be the thin end of the wedge - make no mistake. How long before it becomes yet another much abused tool of social segregation and control? Do we then see a rise in the popularity of being paid in cash? The tax man won't like that.. Interesting to see where this could go.

  • rate this

    Comment number 2.

    What Tesco has done by announcing charges is to guarantee their current account launch is a failure. It is a reflection of their recent management style - out of touch !!

  • rate this

    Comment number 1.

    "It costs banks to provide accounts to those who don't deposit any money in them but simply use it for transactions. This is all about transparency, the chief executive, Benny Higgins, argues."

    Whilst totally hiding the fact that the banks invest and profit on the customers money ... such a blatant deception, Mister Higgins.


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