/ Money

Upfront current account fees aren’t the answer

Broken piggy bank

As our research throws yet more light on the real cost of banking, and the CMA calls for an inquiry into competition in banking, the first reaction has been to call for an end of free banking. But is that really the answer?

Britain’s retail banking sector has taken a couple of knocks in the last week. Firstly the Competition and Markets Authority (CMA) produced its report on the current account market, which suggested levels of switching were ‘not what would normally be expected in well-functioning, competitive markets’.

Meanwhile, we’ve just published research into the real cost of banking which shows that there are vast differences in the amount of overdraft fees attached to current accounts.

Differences in overdraft charges

Our research, based on real life examples, found that a regular authorised overdraft user’s charges could range from 6p to £60 over a three month period, depending on who they banked with. Meanwhile, a regular user of unauthorised overdrafts could be subject to fees ranging anywhere from 25p to £150.

In short, it’s almost impossible for even the most savvy customer to work out if they’re on the best current account. Current account switching – despite being reformed last year by the Current Account Switch Service – has a lot further to go.

This is shown in an earlier survey, where half of consumers who haven’t switched banks told us they’d be more likely to do so if it was easier to compare accounts, yet only a quarter agree that this is easy to do at the moment.

Banking at a price

Some banks have responded by calling for the introduction of current account fees. According to its supporters, a single account fee would aid transparency and facilitate switching as the cost of the account would be clear to customers.

However, as our research shows, free banking is a myth. If upfront current account fees were introduced, would overdraft charges really disappear? Would they become simpler to understand? And why should those who never use their overdraft – or don’t have one – pay for those who do?

Plus, an upfront charge puts a barrier in the way of the vulnerable and often elderly customers who may find it difficult to take part in mainstream financial activity.

Data is the key

It’s in this context that the Government’s midata scheme could come into its own. From April 2015, current account customers will be able to download data on their last 12 month’s transactions. They will then be able to feed this into a comparison site to check how much their account is costing them and whether another would suit them better.

While six of the biggest high street banking groups have signed up to midata so far, the whole banking industry needs to take part to ensure competition in banking. It’s this subtler, empowering, approach – rather than the blunt instrument of a blanket upfront fee – which holds the key to a more competitive current account market.


My current account has online banking, a chequebook, statements, direct debits, a branch and is free. I use it sensibly, and would like it to either stay free, or if necessary pay for itself by keeping a sensible balance in it.
Two comments on the introduction:
– it may be that most people do not switch accounts because they are happy with their bank, as I am.
– Using unauthorised overdrafts as a criteria for judging the cost of an account I find quite unacceptable, in particular when you suggest this is a regular occurrence and not a rare slip: “a regular user of unauthorised overdrafts could be subject to fees ranging anywhere from 25p to £150” . A bank will allow you an overdraft facility if you ask and if you are creditworthy. If you don’t ask then you are using money you are not entitled to and that you may, in the bank’s eyes, not be in a position to repay. It’s like taking cash out of your mum’s purse without asking. You are clearly not in control of your finances, and this should worry the bank. So why do you persist in using it to judge an account? The bank is rightly penalising those who misuse their accounts.


totally agree.

Ian Colley says:
26 July 2014

The unfair part is that if you mistakenly go overdrawn by a few pence you are not informed, and are charged large fixed sums, added to daily. It is not meant to be a deterrent, but is a scam introduced by the bank to make money.

Alan Reynolds says:
27 July 2014

A bank account is one way of receiving and of paying out money. There is very little difference in the methods used, between one bank and another. So we have account to account transfers (BACS, FPS), cash deposits or withdrawals (ATMs, branches, cashbacks at supermarkets), payment cards (debit, credit, contactless) etc. In fact, for the money systems to work conveniently there needs to be no differences in the systems. How easy each bank makes it to use each of these facilities is where they can compete. I have such accounts with five banks in the UK and use whichever makes it easier to complete that type of transaction. I dont by which I mean I dont close one and use another; I simply use one more than another depending on what type of transaction I want to do.


malcolm r, I agree with you that it’s unreasonable to judge a bank’s overall charges by assuming the use of regular unauthorised overdrafts. However, I disagree with your implication that unauthorised overdrafts are the customer’s fault. Quite often, a customer can get stung by surprise direct debits for such things as obscure recurring annual insurance premiums for policies they have forgotten they had, or throught they had cancelled when the company had lost their instructions. Or the various scams where the customer thinks they are buying a single item when in fact the small print says they are entering into a subscription. I lay the fault on the bank for this type of unauthorised overdrafts. If the overdraft is not authorised, then why on earth did the bank authorise the direct debit when there was clearly not enough money in the account in the first place? The answer is, of course, so the bank can charge these extortionate fees. I really don’t see how the bank can justify calling it an “unauthorised” overdraft if it was the bank itself that authorised the direct debit which made the account go beyond its authorised overdraft limit.


clint, it is still the customer’s responsibility to remember their recurring payments, and to ensure they don’t get into unwanted subscriptions – we cannot blame the bank for these errors. Whilst I agree (and have inferred) that a rare inadvertent slip into the red can happen, my criticism was with the “regular user of unauthorised overdrafts” cited by Which? This is not due to “surprise” transactions.


I totally agree. Why should I have to pay bank charges just because others do not manage their finances wisely?


It’s actually the other way around, Brian. Currently, the “others who do not manage their finances wisely” are subsidising your bank account. If it weren’t for them, you would surely have to pay bank charges. Does it still seem fair to you?