Free banking will soon be a thing of the past

IN AN environment of persistently low interest rates, it has become increasingly hard to find a free current account that pays any credit interest at all, according to personal finance information website

Its research, which was published earlier this week, showed that 55 per cent of current accounts on the market pay no credit interest while a further 28 per cent pay 0.10 per cent or less. At the same time, the number of fee-paying current accounts has doubled over the past five years, luring customers with better interest rates, free insurance, breakdown assistance and private healthcare, for example.

Consumer champion Which? found that it costs you about £40 a year to keep £1,500 in your free current account as opposed to a top instant access savings account because you are missing out on the opportunity to earn a decent rate of interest. It also points out that while you are earning only a very small amount of interest, your bank is investing your money at a higher rate.

But the British Bankers’ Association (BBA) stressed: “Current accounts are not, and never have been, intended for people’s savings, although many do attract a small amount of interest. They are exactly what they claim to be, an account from which everyday transactions such as direct debits and ATM withdrawals are managed.”

With the number of fee-paying current accounts on the rise, does this mark the end of free current accounts? certainly thinks so: “If the rising trend in fee paying accounts continues, it could suggest the beginning of the end of free banking as we know it,” says spokeswoman Michelle Slade.

She adds: “Banks are keen to tempt customers into opening fee-paying accounts as a large proportion of customers will pay the monthly fee and not use the benefits. A few years ago, fee-paying accounts offered better overdraft and credit interest rates as well as additional benefits, but this is no longer the case.”

But as the BBA pointed out yesterday, UK banks are quite unusual in that they do offer the option of fee-free transactions. In France, for example, you only get a chequebook free with most current accounts. A monthly fee is charged for your debit card and internet banking, two products that Britons take for granted.

Nonetheless, Which? argues that free banking in Britain has always been an illusion. “Whether it’s through low interest rates or high charges, we all end up paying for our current account in the end,” says Which? chief executive, Peter Vicary-Smith. But given current trends, it may not be too long before we end up paying directly as well as indirectly for our bank accounts.