Proposed end to free banking whips up a storm

28 May 2012 15:22:06

Charges on bank accounts wouldn't necessarily improve transparency, Which? says.

Comments by one of the Bank of England's policymakers calling for an end to free banking have whipped up a storm, being met with a decidedly mixed response among consumer groups. Andrew Bailey, the bank's executive director, said in a speech at the Westminster Business Forum last week that the concept of free current accounts is a "dangerous myth".

He explained that the idea of free banking is a falsehood because banks will make consumers pay through charges and fees on other products and services. Such a situation is dangerous because it is not really clear to customers how much they are actually paying for their banking products.

In his speech, Mr Bailey said: "Even if I am like a dog with a bone on this one, I don't think we will have a retail banking industry that is properly serving the interests of the public until we tackle the dangerous myth of free in-credit banking."

Reactions and responses

No-one doubts what the banking executive says about the myth of free current accounts. The Office of Fair Trading's investigation into what it considers unfair bank charges on unauthorised overdrafts highlighted as much. In 2009, it found that as much as a third of banks' current account revenues come from these charges. Consumer Focus has gone as far as to say that the fact banking is not really free is one of the industry's "worst kept secrets".

However, many remain sceptical that organisations would make things more transparent and remove these hidden costs if they were to charge for bank accounts. According to Which?, this idea is "completely unfounded".

The consumer group, which estimates that bank customers currently pay £9bn a year in fees and lost interest on their current accounts, adds: "We need to see greater transparency about the true cost of banking. All banks should be required to provide downloadable electronic information so that people can clearly see how much they currently pay for their accounts and make 'one-click' comparisons between accounts."

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