by Mark Johnston
Free banking to become a thing of the past?
It seems that these days’ banks seem to hunt customers with one fervourous aim and that is to maximise profits for their share holders.
In the wake of the financial crisis, more and more consumers have become more informed and discerning about where their money is invested.
Whether realistic or not, in theUKthere is a high expectation of free banking for all!
Free banking was introduced in theUKwhenMidlandbank decided to scrap current account charges in a bid to grab the market share back in 1984. This worked so well however that the rest of the high street had no other choice but to follow suit in order to stay in the market.
Britainis still one of the few countries in the world where customers do not pay a fee for their current account.
The head of the Financial Service Authority (FSA) Lord Turner, has recently suggested thatBritain’s free bank accounts represent a ‘flawed system which damages banking’.
Andrew Bailey, the Bank of England’s executive director, has also stated that “free banking is and always has been subsidised by current account holders who pay extortionate amounts for overdrafts”.
Some experts believe that a reform of retail banking in this country can not happen unless the issue of free in credit banking is tackled.
Which?, the consumer magazine, estimates that consumers pay more than £9 billion a year in fees.
In light of this and according to the Bank of England’s chief executive, bank customers should be charged a monthly fee on current accounts even if they are in credit.
Bailey suggests that the fees would replace a regime of back door charges which banks use to make money from ordinary customers.
Charges of £15 a month could be applied, allowing a fixed number of cash machine withdrawals, direct debits, standing orders and cheques. Any transactions beyond these caps would attract extra charges.
There are also some who argue that free banking might be encouraging mis-selling of financial products because of the unclear picture of the price of banking. However, Which? executive director, Richard Lloyd argues that “the idea that if banks charge more, they would stop trying to mis-sell other financial products is completely unfounded”.
Recent surveys have shown that at least 73% of all consumers believe that they should not have to pay a monthly charge for their standard current account.
Chris Leslie, Labour’s shadow Treasury minister, said “when banker pay and bonuses remain so high, many ordinary bank customers will be astonished at any move to hit their current accounts with a new fee”.
Sarah Brooks. Director of financial services at Consumer Focus, added that “if free banking does end, consumers must not be hit with a double whammy, paying for accounts but still facing the unfair charges and poor customer service which currently dog retail banking”.
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