/ Money

Charging to use a current account? It’s not for me

Chequebook and bank card

The introduction of current account charges has been suggested as the remedy to a variety of financial ills over the years. Most recently, it’s been proposed to tackle banking transparency – but is this the solution?

Now, the first thing to remember is that banking is not free in this country – contrary to what’s commonly believed. UK banking customers can pay up to £2,197 per year to their banks in the form of charges arising from overdrafts and bounced payments.

As a result, it’s estimated that the banks rake in nearly £9bn in charges and forgone interest on our current accounts. So any extra charges could be on top of the considerable amount the banks already receive from their customers.

Charging all bank account users

It’s recently been suggested that there could be a charge on all current accounts – regardless of debit, credit or additional features, to increase bank charges transparency. This is because the existing charges operating on most current accounts are confusing to customers, who often feel these charges to be ‘hidden’ in the small print. Supporters argue that a flat, upfront charge would allow customers to compare different accounts and switch more easily.

However, while there’s a clear need for transparency around charging, there’s no guarantee that an upfront charge would bring this about. Would current account charges see the end of the banks’ myriad of complicated overdraft charges? Or make them pay more interest on current accounts? It seems unlikely.

Meanwhile, what about those who never use their overdraft – is it right to make these customers contribute fees to cover costs created by those who do?

Banking charges add to the squeeze

Finally, there are vulnerable, low-income customers, such as those surviving on the state pension, who may already find it difficult to take part in traditional financial activity. Do we really want to create yet another barrier between these customers and the mainstream of financial service provision at a time when we should be thinking about ways to reduce the numbers of the ‘unbanked’?

If banks want to be more transparent, they could offer downloadable electronic information about how you use your account. This would enable comparison sites to be developed so that customers can be clear about how much they currently pay and whether there’s a better deal available elsewhere.

So what do you think? Do you buy the argument that an upfront fee would create more transparency? Or would it just be business as usual with a charge on top?

Should you pay for a standard current account?

No (81%, 1,458 Votes)

They're not free anyway (16%, 284 Votes)

Yes (3%, 63 Votes)

Total Voters: 1,805

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I think we need to start by discussing the interest rates that banks would pay on money held in current accounts if they want to charge us for using these accounts.

The best way to encourage customers to switch would be to offer a trial period and the opportunity to switch back to a ‘free’ account.

ND says:
5 March 2014

Firstly why should we pay banks anything??? We’ve already bailed them out whilst they rake in profits – utterly outrageous and an outright scandal. Secondly why should we have to pay money to them to make them be transparent about charges, why on earth is one thing linked to the other??? Transparency about charges should be the law, not something we have to pay for. Thirdly it would just be an additional money spinner for them and even if they brought down current charges as an excuse for spreading costs across customers, without doubt a few years down the line that would be forgotten and once people were used to paying for banking as standard, they’d hike up the current style charges again and we’d be worse off than before. The banks owe us massively, they should be paying out bonuses to each and every tax paying citizen not contemplating taking even more money from us – utterly scandalous!!!!!

This is typical of the ‘nanny state’ attitude that people have nowadays. Bank charges are perfectly transparent if you can be bothered to read the small print, although the PPI affair was definitely wrong, and illegal, and should never have happened. Everyone who goes into overdraft, or has a cheque bounced, has done it voluntarily or through being irresponsible and not monitoring their account sufficiently. It is about time people grew up and stopped whining all the time, and started putting some effort into working out what is best for them – after all, we all went to school, didn’t we? We should be able to work out percentages, or discounts or whatever. The banking crisis happened not just because the banks supplied money too easily, but because people took out credit irresponsibly, and then whined that it was someone else’s fault. Phooey!

Much of what you say is true; But equally true is that there is far too much small print (or gabble on radio, or unread reams in pop-up windows online), often in convoluted legalese that everyone knows nobody really reads let alone comprehends.

A cure might be that all print must be of the same font size, and that the seller must read all of it to the purchaser in full and check at the end with random questions, that the purchaser has understood everything. If nothing else, that would reduce the amount of small print, and force it to concentrate on a few paragraphs that really mattered, written in crystal clear transparent English.

I really agree with your point about “convoluted legalese”.

These people are paid a fortune to produce this rubbish. It is about time that the legal profession realised they are supposed to be a caring profession whose purpose is to help us all get along with each other.

They should not be a profession whose purpose is to shaft us for as much money (+VAT) that they can groom us into agreeing to pay.

The failure of society to give value for money instead of trying to trick people out of it for no value is what is giving rise to all the economic problems of our present time. Money isn’t representing value, instead it represents a gaming point that you can twist out of other people. A few days ago the top three items on the TV news were all about vast sums of money changing hands because of legal actions. These actions had nothing to do with value being exchanged for the money. It is hardly surprising that there are financial failures and riot and rebellion all over the world.

Have a “look inside the book” called “The Selfish Gene” on Amazon and search for “lets kill all the lawyers”. This is a solution suggested by a rebellious character in Shakespeare, and the author (Richard Dawkins) goes on the explain why the profession still makes people think along these lines.

We need a legal profession, but we do not need the way it has become. The phrase is in Chapter 12 “Nice Guys Finish First”, and in the printed edition I have it appears on page 221.

Mike Suttill says:
8 March 2014

I totally agree that people should take more personal responsibility for their actions – especially financially. Which seems to be endorsing more and more “the Government should do something” issues rather than pointing out how people can do things for themselves. Terms and conditions are always available for current accounts, credit cards and other financial instruments and should be read and understood before people take them up. Free advice is available to those who might be termed vulnerable. As for Banks charging for using current accounts – those of us who do not incur charges should not be asked to pay for a service that the banks provide in order to use our money whilst on deposit.

John, I dislike the amount of money made by the legal profession, and the ease with which our public bodies pay them, using our money, for protection. However, as I see it, it is politicians who cause laws to be written and enacted, not the lawers; their job is to interpret the law as it is written to help their client. If you are accused of breaking a law you would want your lawyer to do everything possible to get you off – the prosecution will do the reverse. Including unravelling convoluted law and exploiting loopholes. Blame the politicians – but it is not an easy job to write rules that are totally watertight and mean exactly what you want. Bit like the terms and conditions of your bank account (just to try and keep this on topic!).

How many people with a financial or employment interest in banks are allowed to be MPs? How many pharmaceutical manufacturers, arms makers etc?

Now how many solicitors, barristers, accountants etc are MPs?

A current account costs a bank money to operate – dealing with incoming and outgoing trasactions, standing orders, direct debits, issuing cheque books, sending out statements. So if you only have a current account, who is going to pay for these costs? Do we expect other customers, with overdrafts (authorised or not), who incur other charges to subsidise us? I don’t think so. My current account is “free” of charge, although no doubt the building society (in my case) makes a little bit of interest on the balance I leave there. I don’t begrudge them that – I get a good service. I would be happy if all customers paid for the service they received, set against interest earned on any credit balance.

ND says:
5 March 2014

Malcolm: do you really think the bank doesn’t make a profit and gives free banking for the love of it?? Don’t kid yourself, banks make tons of money off the interest on the money we give them, they make HUGE profits!!! And also have you forgotten the gigantic bailout we gave them for their reckless actions that wrecked the economy whilst they handed out insane bonuses on top of already incredibly high wages!!??

ND, as I said, money is made on the deposit in your current account. However, if you operate that prudently – keeping most of your funds on deposit (earning interest) and transfer what you need when it is needed – then that money made will be small. If you do this you get very good value from a current account.
I don’t kid myself, nor have I overlooked the bailout. Don’t confuse the investment banking problems with other banking. This conversation is about current accounts, not how we obtain service for free as retribution for misdemeanours

willowe says:
6 March 2014

I completely agree Malcolm.r . Like you I keep my current account balance at a sensible level and don’t begrudge the bank their interest on that as long as they continue to provide me with a good service. Hopefully that interest pays them for providing my account and who knows I might find one of their other accounts relevant to me some day, and they might actually “cross-sell” me something else.

Right-on, mate! Everyone expects something for nothing these days. If you keep your account properly managed, the bank will supply you with facilities, and earn some interest on what is in credit. If you search around, you can find banks which will give interest over certain amounts in credit.

Mary says:
5 March 2014

For several decades when wages were stopped being paid in cash, banks have encouraged the use of current accounts. Monies deposited and then used over the month e.g. salary, is then available to banks enabling them to gather interest on these funds.

Direct debit payments were also encouraged with the closure of offices that originally accepted payments. e.g utilities. Some of you may not know that electricity and gas used to be paid for at actual showrooms. Most companies now expect direct debits to be used for credit payments, If you suggested you go into the shops/showrooms to make monthly payments they would consider you to be a dinosaur. Also, phone, t.v., broadband providers cannot be paid any other way these days. Why? the banks have dictated that we use the direct debit system instead of going into branches to make these payments. So why should we pay them for a system the banks have created and from which they make profit when our money sits in their systems.

Spot on.

Mary, none of this convenience that direct debits provide need cost you any money. Alternatively you can, if you wish, post cheques to people or withdraw cash and drive to where they are and pay them. Alternatively you can sit at home and make use of direct debits, online payments by bank transfer, debit or credit card at no cost. The banks have provided convenient and cheap payment methods. Transfer your money to a deposit account until you need to use it, earn a bit of interest (instead of the bank), then transfer it back when you need to make a payment.

Unfortunately the use of cheques is gradually being squeezed out of the system and banks will have even less to do in the future.

This is an aside . . . Our house and contents have been insured with John Lewis Insurance for a few years and I used to send them a cheque to renew it. They recently changed from Axa to Royal & Sun Alliance as their insurance provider and from this year’s renewal they will not accept cheques. I usually do a limited comparison exercise at renewal time so I don’t wish to use the direct debit system in case payment is taken automatically or by default or accidentally. They don’t have an on-line payment facility so the only way to pay is over the telephone using a credit or debit card, but they do not have a secure system as it relies on the ‘agent’ taking down my credit card details; since, as an insurer, they have all the personal information they need for identity theft, I am not prepared to go along with that. I have requested them to consider installing an automated, key-pad activated, telephone payment system but my recommendation was not welcome. I moving the insurance elsewhere.

Thank you Mary for the reminiscences about the gas and electricity showrooms. As I recall they were very busy and very useful places. As well as paying the bills [usually about A5 size, one side only unlike today’s voluminous documents], we ordered and paid for coke at the gas office and could buy replacement light bulbs at the electricity showroom. The local water board also had payment offices around their district and every town hall had a cashier’s offfice for paying rates, rents and other charges [including council mortgages in my area]. Unbelievably I suppose to more recent generations, insurance agents used to call round to collect the premiums and football pools collectors would also call once a week! The banks were glad to get their hands on all this monetary traffic but now they’ve made it difficult to do the business. I recently went into a bank for the first time for ages to pay a cheque in and found they no longer used Giro slips, but they asked for my landline telephone number “in case something goes wrong”.

You seem to be implying that it costs nothing for the banks to operate direct-debiting systems etc. Nothing could be further from the truth: enormous sums are paid to IT specialists to set these systems up (and no-one seems to complain about the huge fees they are paid), and I am sure you would be first in the queue to complain when some aspect of banking IT fails.

Harry – Can I suggest that the poll is modified to change the ‘Yes’ option to something like ‘Yes if the bank pays interest on money in the account’. I doubt that many would be keen to pay for a current account without being offered interest or some other incentive.

I agree. You need to be clear about what a “standard current account” is – does it include cheque book, postal statements, unlimited direct debits and other transactions – or are there restrictions. And, as wavechange says, is a rate of interest equivalent to a deposit account paid on the account balance.

But they’re not free anyway. Interest rates have been laughably low for too long now. Yet mortgage rates and other borrowing rates seem to be slowly going up.

And what’s with the 15 days allowed to switch an ISA, if banks etc didn’t keep dropping rates to almost zero, many people won’t need to switch.

Basically, the banks have had access to cheap money for a long time, so they didn’t need to attract retail savers, so no need to offer attractive interest rates. As the housing market picks up, they will need your money to fund mortgages, so interest rates msay start to rise. As I said above, if you use your current account sensibly with little balance, where does the “not free” come from?

Expensive phone lines to call your bank for 1

I very rarely phone my bank, but if I do my landline calls are free. If not sure of a chargeable 08 number, check on saynoto0870, or use the international number your bank usually shows.

Gervais says:
6 March 2014

People seem to have lost the plot here (not Malcolm!). I’m of an age when you had to pay for the privilege of having a current account (and if you could be trusted – a cheque book!) so I think free banking is, well, a bargain. If you don’t like banks then keep your money under the mattress; if it gets stolen then tough. My bank will make sure that I don’t pay the cost of them being robbed or my account being used by a fraudster; basically my current account monies are protected come what may. Try getting cover for that from your insurance company for free. You don’t like direct debits? then go queue in the rain for an hour and pay your bills with cash. You go overdrawn? then you are using/stealing my money so you deserve a hefty charge (of course if you didn’t use a bank then you couldn’t go overdrawn could you?). Banks may have gone wrong with selling PPI etc. but this blog is about current accounts. Why should anyone expect a big organisation to give you your money out of a hole in the wall on demand (as opposed to you carrying a wallet full of £££) or pay your mortgage etc. on time without you lifting a finger for free?

Tim says:
6 March 2014

You have clearly lost the plot and your memory!!!! And I quote: “…the government bailed the banks out to the tune of £123.93 Billion, and at its peak bailed them out to the tune of £1.2 Trillion.” How did the government fund the £1.2 Trillion (and a trillion is a million million million!!!)? The tax payer funded it all of course – that’s you and me! And in the meantime those that caused the banking crisis got paid 6 figure sums plus seriously hefty bonuses – sorry to say it, but you are completely deluded!!! [Source: http://www.theguardian.com/politics/reality-check-with-polly-curtis/2011/sep/12/reality-check-banking-bailout%5D

“My bank will make sure that I don’t pay the cost of them being robbed or my account being used by a fraudster” No they’ll just use your money, my money and everyone else’s and bring the country to its knees. 5 years of austerity and more to come, is not much of a bargain in my eyes.

“Why should anyone expect a big organisation to give you your money out of a hole in the wall on demand” well if you bank with the Lloyds group or recently Nationwide, being able to get your money out is a pipe dream brought about by years of underfunding banking systems whilst paying themselves massive bonuses. And those failures will continue for some time to come too.

Free banking! They should be paying us for leaving our money in their incapable hands. So a free cheque account (in name only) isn’t too much to expect.

David says:
6 March 2014

Well put!!!!

Absolutely right, Gervais! Well said!

“UK banking customers can pay up to £2,197 per year to their banks in the form of charges arising from overdrafts and bounced payments.” This is a curious, and rther tabloid, way of assessing current accounts, isn’t it? I pay no charges on my current account – I operate it in a fair way. If you have an authorised overdraft, you are borrowing money and would expect to pay interest on it. But if you go overdrawn without authorisation, you are using money without permission that is not yours, that the bank possibly may not see again, that they may have to contact you about – why should they take this risk for nothing? And if a payment is bounced it is usually because you don’t have the means to pay it. If you are a good risk, all this can be avoided by making a proper arrangement with the bank – an authorised overdraft limit. If they won’t do this it may be because you are a bad risk.
So perhaps a more impartial and less sensationalist introduction would be in order.

I agree, Malcolm. Which has this nauseating habit of headlining articles with absolutely extreme cases, and in this instance it doesn’t make sense anyway! Who would expect to be able to act illegally (attempt to take money which is not in their account) and not be penalised? My subscription to Which may be under review if they go on like this.

interdave999 says:
7 March 2014

Current accounts should attract a declared interest to repay us for the use of our money. Debits should attract interest to the banks to repay them for lending those who take their money and paying for overheads and services such as direct debit which would be paid in accordance with the banks’ declared tariffs. How much simpler and transparent can it be? It is in the banks’ interest to have it complicated and opaque. That is where they make huge profits. I would hope that the Government would charge RBS etc. interest on the total costs we have been involved in to prop them up when they made a right pig’s ear out of it, but I would very much doubt that will happen as the politicians also have their snouts in the pot for what they can get out of it.

We have a saying in Yorkshire, and it does apply to bankers, especially since 2008 ,since which ,their true colours have been on shameless display ” Give em nowt”

Sue says:
7 March 2014

Hi new to this site but just wanted to share my views, my bank never charged I had been with them for 40 years, but they had constantly been underperforming. I took the plunge last year and moved my current account and savings to a bank that charges £2 a month in return it gives cash back on some dd’s And I currently earn 3per cent interest on my monthly balance (which is better than most saving accounts)
I am more than happy!

Paying a small fee (£2) for a current account, can provide some real benefits. I recently changed my current account to the Santander 123 – this provides some real benefits, such as cash back for direct debits paid to Utilities and Communication providers and an impressive 3% interest paid on accounts in credit, up to £20,000. I have not looked back since opening this account, the transfer of accounts was seamless and it is fantastic to receive payment from your bank, every month, just for paying your bills and keeping in credit – well worth the £2 per month fee!

I now operate TWO Santander 123 current accounts, each holding £20K earning 3%. Santander allows each customer to have 2 of these accounts, provided each receives £500 per month, and has two monthly direct debits in force. The cashback on these more than covers the £2 monthly fee. 3% interest is far higher than I can earn on savings accounts elsewhere. I have found Santander very efficient, and they always reply promptly to my on-line queries and requests.

The other thing that we need to consider is tax efficiency. If banks charge for the use of current accounts in credit, they will also be required to levy a VAT penalty, currently 20%, on this charge. In addition, if when interest rates rise, and interest is paid again, then the customers will pay the income tax penalty on the income.

At present the interest on the account covers the cost of the account, together with the other charges mentioned in the article. If interest X is paid and taxed at 22% and the charges Y are taxed at 20%, that has the following result. The customer gets 0.78X of the interest, and has to pay 1.2Y back to the bank. If 0.78X is the same as 1.2Y then the bank is a lot worse of than if X and Y are equivalent. In practice what would happen is that the O.78X will be much less than the 1.2Y. It is the customer who will be a lot worse off. and the banks would blame it all on the government.

Any activity that is financially penalised, such as driving on public roads at 100 mi/hr, tends to cause people not to do it. The government deliberately increases the tax penalties on tobacco smoking and alcohol consumption in order to make people reduce these activities. Food products that cause obesity are also being considered for heavy tax penalties. I am not sure what alternatives there are to bank accounts, but I am sure that they will appear on the Internet once these in your face charges, inflated by taxes, appear.

Ann says:
7 March 2014

My view is that a basic current account allowing paying in of income and paying of bills must be free, even a low charge of say £2 a month would have a significant impact on people with low incomes such as the unemployed and basic state pension. Most state benifits are paid into bank accounts. Most employers will only pay wages into a bank account, a significanty proportion of the population in the UK are on low wages and would suffer hardship if current accounts had a charge.

Momo says:
7 March 2014

Unauthorised overdraft charges are often cited as being exorbitant. What is the comparison with alternatives? I’m thinking of payday lenders.

Ron says:
7 March 2014

In the late 1950s the banks wanted to eliminate the risks involved in transporting cash all over the country to be put into workers pay packets. Free banking was the inducement to persuade the workforce to accept this. If they wish to charge for bank accounts then they must be ready to pay the price of transferring and protecting cash. I imagine that they would prefer to avoid that, or to charge the public for that service too.

JRH says:
7 March 2014

When I first opened a bank account charges occurred unless you kept a minimum of £50 in the account for the whole of the charging quarter – if your balance dropped below this for even one day you were charged for the entire quarter. Charges were 27p per debit (cheque, ATM withdrawal, standing order (direct debits did not exist in those days)), credits were free. This was in 1980 – in today’s money that seems to be around £180 minimum and 98p per debit. Only a few years before I had an account the minimum requirement was £500 (which is around £2000 in today’s figures) so virtually everybody paid for their accounts.

I notice that the current suggestions are for flat fee charges, not per transaction, and are at a much lower rate than they used to be.

I have used an overdraft twice since I had the account – the first time I was under student account conditions so it was still free and the second I ended up borrowing the money for about three weeks and there were no bank charges – just pennies in interest.

I don’t believe my bank has made enough money out of my current account to cover their costs in running it, even allowing for the interest they can earn on my money (I never have a large sum of money in there). These days banks are offering current accounts as loss leaders to other products, which in my opinion is partly to blame for misseliing issues – the banks need to sell a customer something else to make having their custom worthwhile.

Part of the problem is that *everybody* needs a current account now. Until alterations to the Truck Acts by one of the Thatcher governments people retained the right to be paid in cash and many weekly paid people on lower incomes did not need or want to run a bank account. Now employers can insist on wages being paid directly to a bank these people need accounts. Even many government benefits seem to be no longer paid in cash. The banks are unlikely to make money out if these people, as they can’t afford any other products, and would probably prefer not to provide them with bank accounts at all. Even flat fee charging is going to result in negative publicity around those with those incomes having money taken by the bank. What is needed is for these Truck Act reforms to be reversed thus providing the ability for people to choose a cash only existence and returning to the days when only the better off had bank accounts (who can afford to pay for the service)

rich says:
7 March 2014

Not going to happen mate

Bob says:
8 March 2014

Broadly speaking there are two types of current account users.

1. Savers
2. Spenders

The savers will always have their accounts in credit,. They will typically have an immediate access contingency savings fund to help cash flow and the unexpected. By organising their finances in this way they avoid paying any fees. However banks do make money from them by the very poor interest rates that banks give on the balances they maintain.

The spenders much more likely to use overdraft facilities. It is only right that they should pay for this through fees. Banks are taking a risk giving unsecured credit to users of these facilities. Sometimes people don’t pay back. This risk and potential default has to be paid for. It is only fair that this is funded by users of these facilities through fees.

Al says:
8 March 2014

It is time for banks to treat their customers with respect. Charging for Current Accounts is an absolute disgrace. We already pay for the service in the form of zero interest rate on balances, so effectively customers are lending them money. In addition most savings accounts pay pitiful interest rates. Banks also need to urgently invest in more robust and secure IT systems.
Stop robbing your customers, and eliminate the huge bankers bonuses, after all the self same bonus bankers took this country to the edge of bankruptcy. Their pay levels should be frozen until Banks return to a secure financial state.

So banks your first priority should be to put your house in order and create a new culture top down among your management and top level bankers.

Many years ago all current bank accounts made charges as I remember those were per item. Of course that was before hole in the wall machines, when you had a bank manager in your local branch, statements were typed and you got one once a quarter. But there were always plenty of staff to serve you and your local bank was a friendly place to go. I remember when moving to a new town going to the bank and asking for a recommendation for a solicitor to deal with my house purchase. We paid for al that but it was a good sewrvice and well worth it. Now what do we get machines which do not like it when bank notes have been written, usually by banks I fancy. So if banks want paying then let thenm start providing a service.