Basic bank accounts for all
Alistair Darling has announced bank accounts for all in his Budget, a move that some experts warn could spell the beginning of the end for free banking.
The chancellor announced the measure as part of the government's drive to tackle financial exclusion.
A government taskforce claims 1.75 million people don’t have a basic bank account - meaning they lack the ability to deposit wages, benefits or other payments.
The British Bankers’ Association (BBA) says that everybody can have a bank account if they want one other than in rare cases where the law says they can't - for example, those suspected of opening an account with the proceeds from criminal activity, money laundering or terrorism.
Most banks also refuse accounts to those with fraud convictions, or those who are undischarged bankrupts.
More than 50% of people without bank accounts are among the poorest fifth of the population.
“In recent years UK banks have worked with the government to cut financial exclusion, halving the number of households without a bank account,” the BBA adds. “Every month 40,000 more people open basic accounts.”
All the major banks currently offer basic bank accounts to customers. These don’t come with any overdraft facility so you can only spend the money you have in your acount.
Michelle Slade, spokesperson for data provider Moneyfacts, warns the move will mean higher costs for banks - which could be passed on to standard banking customers: “The change could be another nail in the coffin for free banking, with banks looking to regain the additional cost potentially through the introduction of monthly fees.”
Virgin Money, which is in the process of becoming a fully-fledged retail bank, recently revealed it will charge a monthly fee on its current account offering, which would include overdraft charges.
The number of fee-paying accounts has more than doubled in the last five years, according to Moneyfacts, and is expected to increase further.
“While the heart of this initiative is in the right place, in practical terms it may cause more expense for the majority of customers further down the line,” says Slade.
The new rules will create an added burden for the banks, warns Datamonitor.
Not only will they be unprofitable to operate, as the new customers will be unlikely to maintain large credit balances, they will also afford very limited opportunities for cross-selling.
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.
Exclusion is a potential loss or specific risk that an insurance policy does not cover and they occur in all types of insurance policies. Common exclusions include: natural hazards (exploding volcanoes, earthquakes) war, nuclear fallout, wear and tear (anticipated through the use of a product, especially motor insurance), UFO damage to vehicles, vehicles “stolen” by vengeful spouses, travelling any pre-existing health problems and travelling to countries the Foreign & Commonwealth Office deems too dangerous.
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.