Fee-free current account launched
The Santander Zero current account charges customers 12.9% interest on overdraft amounts, but will not hit them with additional charges for authorised or unauthorised overdraft usage.
The account, which won’t be available until 11 January 2010, also pays 6% interest on balances up to £2,500 in the first year as long as £1,000 is deposited each month. It also waives charges and foreign exchange fees when used overseas.
What’s the catch? This product is only available to current Abbey mortgage borrowers, or homeowners who take out a mortgage with the bank. Alliance & Leicester borrowers will be able to take advantage from next summer.
"There are 15 million people in the UK with a mortgage - I encourage every one of them to switch to one of our best-buy mortgages that offer great value for money so that they too can take advantage of fee-free banking with the Santander Zero Current Account,” explains Vim Maru, director of retail products at Santander UK.
Santander has a 13.5% share of the mortgage market in the UK, with two million mortgage borrowers.
However, Kevin Mountford, head of banking at moneysupermarket.com, warns borrowers with other lenders not to move their mortgage just on the basis of this current account offer.
"This is not a sufficient saving to justify switching a mortgage where you could face additional fees,” he says. “If you manage your money effectively, your current account shouldn't cost much more than a few pounds a year, if anything at all."
The launch comes just days before the House of Lords will give a final ruling on the long-running overdraft fee test case. It is expected to find that the Office of Fair Trading (OFT) does have the power to decide whether current unauthorised charges are fair or not.
Both the High Court and the Court of Appeal have already found in the OFT’s favour, but the seven banks also involved in the test case – including Santander-owned Abbey – have appealed these rulings.
The judgement will be given on Wednesday 25 November. Just under one million people have claimed for the return of their unauthorised overdraft charges, but their cases are on hold until a legal decision can be ruled.
While the banks could appeal the decision made by the House of Lords – thus referring it on to the European Commission – they are not expected to.
Royal Bank of Scotland broke a trend earlier this year when it slashed its overdraft charges.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.