/ Money

Bank accounts aren’t free, so why don’t we pay upfront?

Man holding a sign saying 'free'

How much do you pay for your bank account? Think about it for a second. You may not pay any upfront direct fees for your account, but the reality is that you do pay. ‘Free’ banking is one of the industry’s biggest myths.

The vast majority of us operate our bank accounts under a free-in-credit model. If your account has a positive balance, you won’t pay a penny.

However, if you head into the red you will start to incur charges. This may be due to interest paid on an authorised overdraft, or fees paid for entering into an unauthorised overdraft. Or you’ll get hit by charges for using your card overseas, or to pay for money transfers. Not so free anymore eh?

Do you pay for your bank account?

And for those of us still sitting pretty with a positive balance, it isn’t all smiles. Are you earning any interest on that savings’ balance? Who gets that money? Free isn’t starting to seem so free any more is it?

Indeed, in 2008 the Office of Fair Trading found that people paid on average £152 a year for their bank account. And the bulk of that sum comes from the lack of interest you receive on your money.

When you think about it though, it makes sense. There’s no such thing as a free lunch and neither is there such a thing as a free bank account.

Current accounts have to be paid for somehow. There are clearly costs involved – operating branches, stocking ATMs and processing direct debits all cost banks money and these costs are passed on to us.

The trouble is, because these costs are all passed on via small print charges and the interest you miss out on, it’s not easy to figure out how much you’re paying and whether you could get a better deal elsewhere.

The illusion of ‘free’ banking

And the banks aren’t doing much to illuminate the situation. When a recent Parliamentary enquiry asked them how much it costs to provide current accounts, senior figures from the big banks weren’t able to answer.

Yet, when attempts are made to toughen up on consumer protection, such as moves to limit unauthorised bank charges, the banks threaten ‘the end of free banking’ and a new world where we’ll pay upfront for bank accounts.

But is that threat just a big game of bluff? The current system suits the banks down to the ground. It lets them hide their charges and avoid competing on value.

So maybe we should wonder whether upfront charges could actually make the banking system work better. After all, it would make us start paying attention to what we are paying, and show us when banks aren’t giving us a good deal.

Would you prefer an upfront charging model where all bank account fees are clear and transparent? Or would you like to keep the current model and retain the illusion of ‘free’ banking?


When I had a mortgage my bank made a mistake and paid both the new monthly payment and the old payment. I discovered this when, after two months of double payment, I ended up with an unintended overdraft. The bank did resolve the problem and refunded its interest charges but I did not get an apology.

A couple of years later, the same thing happened, but this time I discovered the problem before I incurred an overdraft. Again there was no apology, though the bank did admit the mistake.

It seems unfair that banks can charge us what many of us feel are excessive charges if we break our contract but we are not recompensed for their mistakes. I know several people who refuse to have direct debits because of mistakes made by banks.

I’m sure that one of the correspondents on this topic will defend the bank and their contract, but commonsense suggests that customers deserve a little compensation or even an apology if they foul up what they are paid to do.

Actually I think that if a bank makes a mistake it should apologise and refund without question – So far that is exactly what has happened to me in the single case I’ve experienced. I had a small amount £3 that I hadn’t authorised taken from my visa account – I noted it and reported it – My bank refunded the amount and apologised – two weeks later £300 was removed via the same route – I noted it and reported it with emphasis. The Bank refunded and apologised profusely and issued a new Visa Card.

I do check my accounts at least twice weekly. My point is we should not break our contracts at all without notice and it is our duty to read the small print. If you don’t like the charges imposed by your bank – change your bank – I did.

I would like to change to a bank that entitles me to charge for a letter pointing out when they have made a mistake! A bank that had that term in its contract might be respected by its customers and be more careful with their money.

I have never paid a penny in bank charges in over 40 years, but that is only because I keep too much in my current account. With the interest I have lost, my bank has done very well having me as a customer. Maybe when I retire I will be a little more careful and look at banking more carefully.

Mikhail says:
22 May 2011

British banking system is one of the best in the world! Free ATM withdrawals everywhere in the UK and with some banks even abroad! No annual fee for the most credit/debit cards. Free bank accounts with interest. Free internet banking and text alerts. Free standing orders, direct debits and money transfers within the country. Seriously people stop complaining!