Consumers warned over the future of free current accounts

30 June 2017

Free current accounts could all but disappear from the UK banking scene in the future, the chair of an investigation into the market has warned.

Alasdair Smith, chair of the retail banking market investigation, which was conducted by the Competition and Markets Authority (CMA) last year, says the cost of providing these accounts tends to outweigh the profit they generate for banks.

His ‘open banking’ investigation – the findings of which were published in August 2016 - looks to increase competition in the banking sector. But while the report doesn’t recommend that free accounts are abolished, Mr Smith says the market could move naturally in this direction.

Mr Smith says at present, only customers who have large balances and those who regularly go overdrawn are profitable for banks. If the open banking changes recommended in the report reduce customer inertia, then these consumers will become more likely to switch, forcing providers to charge for all accounts.

“Some groups of current account customers make a disproportionate contribution to paying the common costs of retail banking,” he told the British Bankers' Association conference in London.

“Those two groups of customers are those who have high average current account balances and those who make frequent use of overdrafts, especially unarranged overdrafts.

 “If, as a result of open banking, these two groups of customers find better resting places for their credit balances and better value sources of emergency borrowing than unarranged overdrafts, there is going to be a competitive rebalancing in the market.

“Indeed, it’s entirely possible that the free if in credit current account will disappear.”

Earlier this year a Moneywise poll of 3,000 readers found that introductory offers are the main reason consumers switch their current account to a new provider.

Some 57% of those asked said a compelling introductory offer from another bank is what makes them most likely to switch.


In reply to by anonymous_stub (not verified)

We have no alternative but to have our salary transferred to a bank, so cashless pay would have to be revised?

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