Is it the end of free banking? You bet!

Canarius's picture

I've been following this 'unlawful bank charge' saga with great interest over the past year. From the windfalls of £10,000+ scooped by the lucky few, to the smaller wins won by the average joe. But today the test case gets underway. The Office of Fair Trading is taking on the likes of Abbey, Barclays, Clydesdale, HSBC, HBOS, Lloyds TSB, Royal Bank of Scotland and Nationwide to get them to defend charging customers up to £35 for exceeding their overdraft limit, or bounced cheques.

Call me cynical, but the banks will win whatever the outcome.

If the banks win, the £35 charge will continue and there will be outrage from those still waiting for a refund for not running their accounts like they should. I don't agree with such a high charge, but I really don't have much sympathy for people who 'spend it like Beckham'. It's not your money when all's said and done, so why do it!?

But lets say the OFT wins. The judge rules that the charges are unfair and that they must be brought down to a level which only covers the cost of administrating such misdemeanours. Everyone celebrates whilst the banks go back to their swanky Docklands offices with their tails between their legs. But the victory will be short-lived, because no sooner after the champagne runs dry in Martin Lewis' office, and in an effort to reclaim their costs in some way they'll bring in a charge to run our accounts.

For years in the UK we've enjoyed the luxury of free banking. If we're good with our finances we take it for granted that we can run our current accounts for pretty much nothing. We can use whatver ATM we choose (don't ever use those pub ones, I lost £3,000 through fraud doing so once, and never again, but that's a story for another day), we can transfer money for free and we get sent statements etc for free. My mum lives in Barcelona. Over there you have to pay your bank a monthly charge (roughly £7 I think) for running your account, and you can only use ATMs that your bank provides. But over there the rules regarding overdrafts and credit cards are much stricter.

Don't get me wrong, I don't agree with a charge for banking and I think banks should be falling over backwards to get us to bank with them. But with this 'credit crunch' continuing, I just have this really horrible feeling that 2008 will be the year free banking in the UK dies.


Your Comments

So, if unauthorised overdraft charges are outlawed, will banks withdraw their free banking facilities?

Should banking be free or is there a case for paying for it?

Let us know your thoughts in our Banking and Borrowing Forum...

"Free banking" as it has long been touted is a myth. Another example of Banks being unable to tell the truth. All promotions seem to have a bite back if you look slightly wider than the limited context they want you to see when they talk about such things.

So even if you did always keep your account in credit, never wanted to ship money in just one day (rather than the 4 days plus via BACs) etc, it still wasn't free. Just look at the interest you were being paid on your credit balance. Oh, you weren't paid anything? There you go - your banking wasn't free. Oh, they paid you 1.5% interest? What do you think they were able to earn on it? You see - no such thing as free banking.

And if you didn't manage to religously stay in credit as I regularly fail to do, just going over the odds once or twice by tiny amounts is soon enough to give them a really nice little earner, even if there weren't other more hidden ways as per the above.

I think the real shame with the banks is that they have always been tempted to make things sound better than they really are, to suck us in only to shaft us later when we have taken our eye off the ball. Think of big sexy rates on deposit accounts that ALWAYS get slashed later once loads of people have piled in. They know a big percentage will not move away and bingo - they make even more money. I once worked closely with a big bank and the guy that designed the products there said they had detailed spread sheets and formulae to work out the precise mechanics of how these tactics worked. It is deliberate, pre-meditated and even calculated to three decimal places.

So what should happen?

I think it would be better for banks to be under the same pressure that investment companies are under to disclose charges completely and accurately and far, far more openly than the microprint Banks rely upon to meet the sloppy standards of their voluntary "Banking Code".

Wouldn't it be better to know exactly what you were going to get charged rather than believing in myths like 'free banking' (did you think they were charities?). Then we could assess if the charges were fair or not ahead of time, rather than finding out only when we slipped up - as of course they were counting on you doing.

Honesty and transparency our essential first steps for the banks to take before we can even begin to asses fairness. I fear it will be a long and no doubt winding road.


Being born and having lived in Spain for 25 years, I can tell you that in most cases you can find free banking in Spain, especially if you shop around which I guess it is not the case of your mother. So expensive charges for your mother's account can only be due to a premium account or international transfer of her pension either which also occurs in UK. To my knowledge, the most expensive standard account in Spain requires a maintance fee of £20/YEAR. When you got a salary or pension coming in every month, you do not have to pay these monthly payments.

Regarding ATMs, you can use free of charge ATMs which are part of the main bank networks, i.e. 4B. In the main cities, you can usually find one every 200-300yards.

One more thing, with your ID card (or Passport) you can withdraw money in any branch of your bank. You do not need your credit/debit card.

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