/ 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?


We should all pay £4.99p a month for all basic current accounts,

But that should mean free overdrafts & no charges if You ever go £0.01p – £2000.00p overdrawn, & Some other perks.

I recieved & claimed back all My unfair & unlawful penalities/fees/charges from My old Abbey Bank & Got back over £1600.00p & Since then I have also made sure I write to My bank for all the unfair & unlawful charges/fees/penalities to be repaid back,

Me,My Mum & My step-dad all made our claims before it became cool to take You bank to court over these charges/fees/penalities & Way before the big court case from various watch dogs,

Its because we all knew they were unfair & probably ilegal bank fees/charges/penelaties as they were making profits on them & thought certain acts didn’t apply to them,

But as Myself,My Mum, & My step-dad were all working in good jobs & some big companies, None of us could be asked to fight these unfair & illegal charges,

When I lost My job, I needed every penny I could find & claimed back all My unfair & unlawful bank charges/penalities/fees over some months in 2005/2006 – 2007, I think.

I now hardly get any charges/fees/penalitis, As I pay £25.00p to HSBC Bank Plc, I didn’t always have to pay for My HSBC Premier Bank Plc Account, But I do now, As I don’t meet the free section/s any more.

I am also Now £9.50p to COOP Bank as of this month 2011,As I joined The COOP Bank last month & I’ll be closing down My Abbey Bank Plc account,Once I make My complaint as to why all My 3 Debit Cards were sent to Bournemouth Abbey Plc Bank Branch & 2 cash cars there & They ignored Me over the phone & Said they couldn’t look in to the errors or seem to care.

The “small print charges” are all unenforceable under common law in England and Wales.
Not one single bank has ever produced a factual breakdown of what each charge is made up of.
Quite the opposite in fact, when the British Bankers Association stated in front of a parliamentary committee years ago, that the money a bank writes off each year, is recouped by the charges it issues on its customers on use of their accounts!

The fact is, laws are in place that are being ignored by banks and not being enforced by taxpayer funded quangos.
Self regulation doesn’t work and no matter which way the argument goes on charges, the public end up bearing the brunt of the losses a bank suffers.

The thing to remember is that any charge issued to a customer (regardless of any stipulation in any contract), must only recover ACTUAL loss.
If it fails to do this or cannot be proven, then the charge is deemed to be a “Penalty charge” – legal precedent going back around 100 years clearly states that a “Penalty charge” is unenforceable under common law (England and Wales)

FSA, European rules, are all smoke screens and fob offs, banks and their association (The BBA) argues about interpretation of FSA rules or guidelines, etc, which are under common law, completely irrelevant!

After a decade or so of being forced into using bank accounts for everything, people are starting to wake up to their rights in law and rightly demanding banks either put up or shut up over charges, etc.

Years ago – I had a Midland Bank account – I used to get a “Sundries” charge of around £7 every couple of months – every time I queried it they dropped it.without explanation – a year of this I changed banks.

Now with First Direct – my current account does not accrue interest (the interest actually being used to offset costs) I’m happy with that as the service is excellent

You are aware that Midland Bank was or now is HSBC Bank Plc & Also owns First Direct, Right?.

But glad Your happy with First Direct Though 🙂

Yes – In fact I was one of the first computer geeks who operated the pilot scheme of First Direct by Midland to analyse the probability of an actual online operation before the World Wide Web was born – using a Bulletin Board setup with a 1200/75 baud modem.on a BBC A computer in the very early 1980s.

The sundries charge was a factor of billing by the individual branch of Midland not a general policy – so I switched to on-line Banking 20 odd years ago and never regretted it. First Direct is First Class.

I’m more worried about the charges that the banks hide from us even more deceitfully: the charges that they make to businesses for the privilege of receiving payments that we make for goods and services by any means including cash cash and which are passed on to every customer of every business the world over by being added, in minuscule amounts, to the mark up on the goods and services we are buying.
For anyone in any doubt as to what these charges and expenses are, look at the threads about abolishing cheques (the cheapest payment for companies and traders to accept) and read about the cost of having cards processed and of having the rip-off card terminals.
As customers of the banks we will never be able to find out what these charges are because they are not levied against us directly, and we will all pay way in excess of what our own bank charges because the vendors’ mark up is based on the sum of ALL charges that they pay for dealing with ALL of the banks and card companies that they have to deal with.
The worst of it is not that these charges are very cleverly hidden away but that the banks are rigging the world of payments to ensure that it is as hard as possible for us to pay by the methods which are cheapest for the retailers to process (cash and cheque) and forcing us to use the most expensive methods (Debit and Credit cards) more and more.
As for the “free” current accounts, of course they are not really free and never have been, but I can (just) remember the days when the high street banks were phasing out up front charges and battling against each other to win customers with the temptation of a “free” account and I would hazard a guess that the reason they did this was that too many people had grown to understand that the up front fees were unenforceable and so the banks wanted a more discrete (deceitful) way to charge that would be harder to contest. Incidentally, this happened at almost the same time that the ATM was widely introduced – possibly the cost of these being rolled out was the incentive for the banks to want to hide charges so they could make more money from them?

Why should I pay the bank for “looking after” my money? They use it, while they have it, to make money on “the market”. They have been gradually de-personalising their services to focus on simple money management i.e. closing branches; they introduced cash machines to lower their costs – and also made it easier to get my cash; and they constantly play around with saving interest rates and savings account names to fool me into leaving my savings in a lopw rate account.
I keep track of what is in my account so that I don’t have to borrow from the bank – i.e. no overdraft. So why should I have to pay because some people don’t live within their means and borrow when they don’t want to pay market interest rates. The banks are not a charitable foundation, and nor am I. They do make money from running current accounts, so I don’t expect to pay them to make even more.


You say why should You pay banks for looking after You money, But the point is they haven’t really been looking out for the customers or our money/monies/funds & Been spending it incorrectly & Making us The Uk tax payers to pay for there mistakes, & Still charge us all unfair & unlawful charges/penalities/fess at an average of £25.00p – £45.00p, When most insiders in certain banks said the true cost was only around £1.75p for sending automatic fine/fee/penalities/charges letter.

It would even go past £4-£5 if You sent the bank charges/fines/penalities/fees by Royal Mail Group Ltd Special Delivery & That’s where its hand delivered & needs signing for from depo to customer,

So sending leters 2nd class stamp pre-paid & having automatic software that prints & puts letters in envelopes wouldn’t cost £25.00p – £45.00p in cost of envelope,letter,ink,& auotmatic sending letter machince & Thats why Banks LOST, As they were making profit on the fines/fees/penalities/charges automatic letters & That’s not allowed under certain acts/laws & Banks tired claiming it didn’t apply to them & It does & Has, Hence why they lost.

So Banks haven’t been taking care of our money/monies/funds, So it makes Me LOL At Your response.

Your aregument is not in the least convincing. I don’t pay any penalties, or charges because I keep a track of my account, and don’t attempt to spend what I don’t have – i.e. I don’t just presume that the bank is willing to lend me money for no cost and without being asked. I pay taxes to help others who are less fortunate. I expect the bank to behave like a business.

I agree that some of them really screwed up over the financial crisis – making loans to people who were clearly never likely to be able to repay, and then packaging up those loans and selling them to each other in a kind of herd instinct. But what has any of that to do with them charging me for running an account. I get a good service from my bank (really I do) and it’s free as long as I follow some simple and common sense rules.

Some of their charges for writing to tell me I’m overdrawn etc are unreasonable – but they are like a voluntary tax, they are avoidable. So I don’t pay them. On the rare occasion when I slipped into the red they sent me a polite letter, didn’t charge me for it, and waived the “penalty” charge. That’s LloydsTSB, by the way.

Brian – I agree – if you are keep track of your account – only spend what you can afford monthly – pay off the credit card monthly – there are no charges. Banks are businesses not charities and need to make a profit.

Ebenezer says:
26 May 2011

So close your account(s) and deal in cash

If we all paid for our bank current accounts & This allowed us emergency overdrafts of £2,000.00p,

As anything can happen to us in life, Even if You’ve saved & have savings, You can have a partner die, loose your job, become disabled, & more,


All these can be unforseen problems & This could cause You having to spend/dip in to savings & Accidently become overdrawn & Banks shouldn’t fine us for needing help in our hour of need,

If pre paying for our accounts yearly or monthly, Would mean we could have interest overdrafts to a limit of £2,000.00p

We should all chip in, That way we’d know what banks are charging us & What we get for those charges.

Why not just ‘phone the bank, tell them the situation, and ask for a £2k temporary overdraft facility? If they refuse, use your credit card!

Brian I agree.

Years ago I actually had a no charge credit card which I used as a Pet “insurance” card in case one of my three large dogs had some form of a problem which I wouldn’t have been able to pay at the time (some problems can cost up to £7000). The cost of insurance was far too high at £600 a year per dog with actually a small risk of a problem occurring.

I never actually used the card – so the company stopped the facility. But I had 5 years peace of mind knowing if the worse happened I’d be covered. I now put money regularly into a savings account equal to a low premium pet insurance. The money accrued now is substantial and until recently the interest paid was sufficient to cover all regular pet medical expenditure. Sort of win win situation! 🙂

We should not forget that our creditors are also contributing towards the costs of running our bank accounts [through processing charges for salary payments, dividend distributions, and other credits]. The costs of banking are shredded so fine and then atomised to the point that no one can calculate the true cost of any transaction, thus there is litle incentive to be more efficient and economical – hence over-rewarded staff, hideous wastage, contempt for consumers, and all the other gross and pompous manifestations of their grip on the essential oil of the economy formerly known as money. They shovel it around until we cannot touch it and they live on what sticks to the shovel.

Having worked for, and suffered from Banks poor service I am not that friendly towards them but I think there is a lack of points of view here.

Brian wants all his service fees to be paid from the money he deposits with the bank. One might be curious as to whether an average balance of £100 is sufficient or perhaps £2000+ is needed to generate the income to fund Brian’s account. And of course Brian might be a very light user of direct debits, ATM, Standing orders, Branch, Cheques etc. Then again he may pay all his household bills by Direct Debits.

I imagine I am fairly modest in my use but I suspect there are 500 a year entries on my statements. Funding those and the ATM network and the bank staff would require more than interest on £200 average deposit I would think.

Actually perhaps the savvy savings campaigns can take credit for abolishing first Bank charges, and then getting people to shift money to small exotic societies that can offer good rates due to tiny overheads. Then making all the banks responsible for failing little ones there is yet more encouragement to invest in the exotic – say Icelandic banks.

Banks need to make profits so reducing branch networks, staffing, automating services, out-sourcing to overseas [Privacy?], indefensible charges were commercial responses. And of course at times of high economic activity the Banks were hardly going to refuse to bind as much as the population as it could to the banking system where they would all become dependent.

I do think up–front charges based on activity on an account is sensible. Furthermore these schemes should be only changeable once yearly so that people are not required to be alert for constant tinkering with terms and conditions. This also could be a useful idea for several other industries such as power and telecomms etc.

I agree – First Direct is clear in that it expects a £1000 balance to be maintained monthly in the current account – for the interest on that to pay for all normal Bank transactions – and maintaining a 24/7 phone help-line service. I think it very fair. For those who do not track their balances carefully enough – they even allow a £250 overdraft without incurring charges.

But honestly anyone who overdraws only has themselves to blame if they don’t keep the bank abreast of their financial difficulties – After all with First Direct I can check at all times what my balance is. If I am likely to need extra money for an unforeseen expenditure – I can apply for an Instant loan at reasonable interest to cover it. For that particular service I expect to pay.

Many years ago – A customer of mine elected to go bankrupt and refused to allow me to re-possess the £20,000 worth (in 1970) of equipment I had bought and installed and had not been paid for. I went to my Bank Manager instantly – explained the situation – His response? “There’s a lot of that around these days!” – With his support I managed to stave off bankruptcy myself and I eventually was awarded 12.5% of my ‘credit’ back in the bankruptcy – My £20,000 worth of equipment was sold off to help pay the bankrupt’s debts! .

In fact of course the credit crunch was due to Banks loaning irresponsibly and not being paid back.incurring debts.

No, No, No, No,

Even those who save hard at 16 years old & Work may not be able to get a loan or extra overdraft at 18/19 years old, & People can loose jobs,die,become phyiscally disabled through work & Many more unforseen cercumstancies can’t always be seen or get help from a big loan or overdraft past £2,000.00p Or people don’t claim benefits straight away & So on.

I think You shouldn’t blame everyone in debit or struggling, or not working, ect, Some people work’d from 16 & Some saved/save & Get charged for stuff that needs to be paid like bills etc.

We can’t compare everyone’s cercumstancies as the sama as Yours or Your friends.

Umm…. Scott

I said – and I repeat – Anyone who doesn’t inform their bank instantly they are in difficulties have themselves to blame. This is about banks Somebody who dies doesn’t care about loans.

I’m sorry someone of 16 to 18 in very unlikely to have a credit rating good enough to borrow ANYTHING. That has been the case for many years.

I did not blame them for getting into difficulties – but if they don’t inform the authorities like banks instantly – they are at fault. A major reason for debt is not spending wisely. That is what Citizens Advice Bureaus are for.

I illustrated my case as the debt was about the price of a house – yet because I was open to my bank I did receive help.

Give another example – when I bought my house – I had no idea I was expected to pay a month in advance – I expected to pay a month in arrears. I instantly wrote to the company to explain – They accepted my explanation. Friends of mine did not write at all – they were issued with a threat to foreclose notice.

Well I can see banks maybe scared of those starting work at 16 years old & Won’t even allowe credit until they are 18 years old & some areas of loans/overdrafts is for 21,

Some people do inform there banks some times asap & Other times it can be delays due to clinical depression, Which can be triggered by anything from loss of jobs,close family/friends dying,lossing a child,accident/injury at work & so on.

We shouldn’t blame everyone for there own problems to there fincainces. Sorry about spelling.

Scott, your posts highlight another major issue, discrimination, that banks are a part of.

There should be no difference in interest paid/charges, etc for any age group. If a bank charge 10% for a loan, they should charge everybody 10% for their loans and not discriminate.
I understand that some people are seen as more of a risk than others, but there are also people in their 20s living with their parents that are charged higher rates of interest than a person with debts outstanding, but they have a mortgage.
This is of course a different issue…

” There should be no difference in interest paid/charges, etc for any age group. If a bank charge 10% for a loan, they should charge everybody 10% for their loans and not discriminate.”

Am I to look forward then to everyone paying the same life insurance rates or car insurance rates regardless of age? The logic is the same. One of the fundamental things about banking, or insurance for that matter is that you are assessed by risk be it repayment or claiming. And within certain age groups there are different risk profiles.

Its not a matter of “fairness” it is a matter of statistics and making a business that survives. Either you thinks shops, manufacturers and traders have the right to make their own decisions on profit or else you believe that “by law” makes a better system.

Diesel – I completely agree – a loan’s conditions depend on the risks involved

Mind you in the old days if you bought something on HP the monthly payment was the same – provided you were accepted – But the young had to have a “guarantor” who basically promised to pay the balance if the buyer defaulted (don’t know whether they do such things now)


The person with a mortgage IS a lower risk – because if they default the loaner can seize the house as payment – and – someone with a mortgage is deemed more responsible because they are planning for their future, Whereas someone living with their parents is deemed either juvenile or too irresponsible to live on their own.

Diesel – apply your insurance analogy (which i didnt say anything about) to overdrafts.
two people are given an overdraft by the same bank, an overdraft for £5000 for example – they both pay the same rate of interest on those overdrafts, person 1 has £40,000 a year going through their account, person 2 has £18,000 a year going in and out of their account.
the overdraft is “sold” for want of a better word, on a standard price/rate of interest.

“Profile” doesn’t come into it. why not?

A person with a mortgage IS a lower risk?
Not at all, financial problems can happen to any of us.
A person with a house has an asset that can be claimed against, they are also more probable to take out insurance policies to protect themselves, which equals more business for the bank.
What about unsecured loans?

Banks charging higher rates of interest to people with lower credit “scores” doesn’t make any sense, why do they make bigger profits from a person more likely to default, on paying them back?
I know of people with absolutely dire credit scores who are adamant that they never miss a payment on their loans.
I also know people with a mortgage whom I wouldn’t lend an apple.

A person should not pay more because of a demographic, because of what other 18-20 year olds have done, for example, as it bears no relevance to the individual concerned.
In case you haven’t noticed, banks are hardly wise financial wizards when it comes to doing things right, remind us once again how much the banking sector owes the taxpayer?
For how much is the taxpayer guarenteeing for the banks incase they run out of money yet again?

frugal – I mentioned insurance as your logic could equally well apply to that industry. As you are aware the European Court has recently instructed that you cannot charge men more than women for car insurance. This is viewed as lunacy as men as a group have more accidents and more expensive accidents than women. So all other criteria being equal you remove one with a very high correlation for , apparently, political correctness.

We will now see women charged more to cover the risks of another group. And I suspect the overall effect will be profit for the insurance industry. Is that fair?

Incidentally I am not knowledgeable enough to say whether banks do charge different age groups different rates for personal loans or overdrafts but I strongly suspect credit and store card companies do. Along with other criteria such as were you live, what other credit facilities you have, and your job.

What I am suggesting is that legislating for how industries should price what they sell is a dangerous and possibly counter-productive.

Frugal – do you have real evidence that the ONLY difference was £40.000 and £16,000 incomes determining the interest charges? – The criteria for acceptance of overdraft facilities does normally depend on income and other criteria. The chances of future financial disasters has little to do with the initial acceptance of the risk of the loan – much more to do with your past credit rating – an £40,000 pa individual usually has a higher credit rating than one of £16,000 pa

If I was granting a loan I would certainly be more likely to accept the £40000 income person than a £16,000 p a person. To me it is logical that the chances of the £40,000 defaulting on the SAME loan is smaller (not impossible – smaller). – and – I can also recover the loan from the House asset ANYWAY – which means it is safer for me to finance the loan in the first place.

Hate to say statistics say that demography and age DOES make a difference. Premiums are set in advance and determined by statistics of PREVIOUS loans – not on the individual’s FUTURE loans – because premiums cannot be charged retrospectively.

The fact that the EU has decided that women (statistically safer drivers) must be charged the same as men – will mean their premiums will go UP which is unfair – It remains to be seen if men’s premiums will go down.

I completely agree with Diesel.

if person 1 gets an overdraft (in effect an unsecured loan) of £5000 – they pay the same interest and charges as person 2 who also gets an overdraft of £5000, so why is this not applicable to unsecured credit/loans?

the current set up is not in place to protect the banks “investment” in the individual, ie, with a loan, it is designed to extort maximum profit for the bank.
if a person asking for a loan is too high a risk, then shouldnt the banks be refusing the loan, rather than giving them the loan and charging them a higher price for it? is this not irresponsible lending?
is this what has got banks into trouble in recent years and in turn cost each household many thousands of pounds in lost services and higher taxation?

The EU ruling on insurance for women and men is exactly right in my view. Why should my wife get car insurance around £200 less than I do, when she has had three minor bumps in her 13 years and I have had no claims in 14 years?
“We will now see women charged more to cover the risks of another group. And I suspect the overall effect will be profit for the insurance industry. Is that fair?” – No it is not fair and I dont want political correctness, I want to see a level playing field and equality.
it is not political, it is profiteering by the insurance companies, which started 6 months before the EU made any ruling, just as the current issue being discussed is profiteering by the banks re charges for bank accounts.

The bank’s way of doing business has and continues to fail – customers are being stung left right and centre and the taxpayer is left paying out millions in interest every week.
Bank’s cannot justify excessive charges, which are under common law unenforceable, as proven by hundreds of thousands of small claims cases brought against them.

Emily says:
10 May 2011

Coming from Australia, where I stil maintain a bank account at a cost of $5 a month (despite my account seeing actvitiy of less than $100 in an average year), I come down firmly on the side of the system we have in the UK.
If you want to make money on savings, invest in a high(er)-interest account, or in some other kind of investment. For everyday banking, stick to the rules and you will enjoy your free account (I’d much prefer that to paying $60 a year for an account I barely use).
On top of this $5 fee, in Australia you still suffer from umpteen charges – every time you use an ATM from a bank other than your own, for example, you’re charged around $2 (yes, you can avoid this charge by only using your own bank’s ATMs, but that isn’t always possible). Depending on the type of account you have, you’re also likely to get charged a fee for the privilege of going into the bank and conducting any kind of over-the-counter transaction. So just because they’re already charging you an account fee doesn’t meant they don’t still try and sting you for more money every chance they get.
As for overdrafts, these are essentially non existent – if you put your card in a cash machine and ask from money than your account contains, the machine will simply say ‘no’.
Most credit cards have an annual fee, too (mine is about $50, again for an account I barely use).
Give me the UK’s ‘free’ banking system any day!


I getting the idea you don’t understand finances or risk.

An overdraft facility is NOT an unsecured loan – it is a temporary loan based on the known credibility of the known customer and if the bank AGREES the loan it is because they are sure the risk is minimum – and they will be able to recover the debt. So two people asking for the same value overdraft and the bank agrees – they will be given the same charges.

An unsecured loan means there is NO security – so high risk – and each person is assessed individually and the charges set according to perceived risks.- so two people will be charged differently. The interest charged is different because the circumstances are uniquely different.

You as the borrower must pay more to compensate for the greater risk the bank is taking. Banks take risks as a part of normal business – Banks would stagnate if they took no risks. This is true with stocks and shares – if you invest in a ‘risky’ share – the interest paid back is higher. It is why a straight loan is preferable to an overdraft.

Sorry – Car insurance is not a level playing field – it never has been – Women have had lower premiums for years not a few months BECAUSE they are a better risk – all statistics prove it.

Banks are NOT failing – there was a glitch – the successful ones are now making increasing profits. Banks are a business and meant to make a profit for their shareholders – not a loss for acting charitably

Overdrafts are in existence – I can get one tomorrow – But I wouldn’t – I’d use a credit card – (except I wouldn’t do that either) I live within my means,.


“I getting the idea you don’t understand finances or risk” – please don’t patronise. I have a differing view to you, that is all.

“An overdraft facility is NOT an unsecured loan – it is a temporary loan based on the known credibility of the known customer and if the bank AGREES the loan it is because they are sure the risk is minimum – and they will be able to recover the debt. So two people asking for the same value overdraft and the bank agrees – they will be given the same charges”
– An overdraft IS a form of unsecured loan, no security is required to obtain one, and to use your own words, it is by definition, “a loan”
– ALL loans are temporary, they have to be paid back within a timescale
– An overdraft is not based on customer’s credibility, it is based on how they run their account, there is a difference. Credit rating (for accepting or declining loans) refers to managing payments of previous or current lending commitments, whereas an overdraft facility is based on regular income into the account and how the account is managed. Nothing is in place to stop a customer from taking out an overdraft and withdrawing all money from the account upto their overdraft limit and defaulting.
The recovery process would be exactly the same as is used to recover a loan default, both secured and unsecured.

There are many cases, in which an individual has been in need of borrowing from a bank, where the individual has approach their bank and requested an overdraft, the bank has refused their request and instead, sold them a loan, both secured and unsecured.
The reason for this is solely for more profit.

I have no problem with overdraft facilities offered by banks.
The product (overdraft) is simple to manage, it is transparent and can easily be compared to other bank’s accounts so remains competitive, with the individual being able to switch relatively quickly and easily.
The overdraft facility treats people equally, which is all one can ask.

Where I take issue with banks, is that the charges they place on customers are unenforceable.
There has not now nor ever been a bank that has produced a breakdown of a bank charge in front of a judge in a claim raised against them.
As they refuse to do this, anyone bringing a claim against a bank for a refund of charges should win their claim, as either party issuing a charge, regardless of contract terms, must show that the charge being issued is “to recover actual loss”
If it cannot do this, then the charge is deemed to be a penalty charge and under legal precedent in England and Wales, a penalty charge is unenforceable under common law.

“An unsecured loan means there is NO security – so high risk – and each person is assessed individually and the charges set according to perceived risks.- so two people will be charged differently. The interest charged is different because the circumstances are uniquely different.
You as the borrower must pay more to compensate for the greater risk the bank is taking”

– Unsecured loan does not mean “high risk” at all. There are millions of bank customers who have taken out unsecured loans and paid them off in full, on time, without any problem at all.
If you take out a secured loan and you default, if you are unable to come to an arrangement acceptable to the bank, they will go through the court system to set up a charging order against your home. They will then apply for full payment of outstanding amounts and try to persuade the judge to grant the order and from the sale of your home, take monies they are owed.
If you take out an unsecured loan (whilst owning your own home) and you default, if you are unable to come to an arrangement acceptable to the bank, they will go through exactly the same process to try and force the sale of your home, or place a charging order against it to secure the debt, should you sell your home.

– charges are set, according to (in part) demographics.
These could be anything the bank chooses.
Your age groups past history of paying loans off, people in your area taking on loans and defaulting or missing payments, the number of loan defaults in the past 12 months (ie recovering money the bank has had to write off), the payment record and past experiences for the bank of people in your job, etc, etc.
These are things that are not down to and cannot be affected by the individual applying for the loan directly.
The criteria the bank use is not unique to the individual at all.
If this was the case, then the working of the individual’s bank account would surely be required when making a decision, which it is not.
Banks ask for details of your job, they then use the track record/history of people in your job who have had loans (in part) to set rates of interest that they charge.

The issue I have is that banks advertise a single rate of interest with small print added, in the same way it advertises its overdraft interest rate, yet when a customer applies for the secured or unsecured loan, the interest rate offered is often different.
They come to this decision/interest rate (in part) by using demographics which is a form of discrimination.
If I apply for a loan with a clean personal credit rating and you apply for a loan with the same clean credit rating, then providing we both have the income to meet repayments (you could earn £40,000 a year I could earn £15,000) then we should both be charged the same rate of interest.

“Banks are a business and meant to make a profit for their shareholders – not a loss for acting charitably ”
– These are your words not mine!
I have no issue with banks making a profit, I recognise they are a business and must turn a profit.
It is how they are turning a profit I have issue with.

If a bank are going to issue a charge, then they should be open, transparent, about how it is made up to recover their actual loss.
If the bank cannot do this or refuse to do this, then they should refund the charge issued or not issue the charge at all.
Banks, I believe, should take demographics out of their workings as regards loans.
The only information that should be used to calculate interest/cost of a loan, should be what the applicant can effect. ie, their past history and current circumstances.
Statistics/averages, etc, should not play a part.

Frugal – Sadly the Banks and I disagree with your postulation, All loans are based on statistics and I agree they should because that is the way businesses operate. So statistics and averages do and must pay a part in calculation of risk – the only exception is if the bank manager knows and trusts you – but that generally is rare. I certainly don’t think Banks,should take demographics out of their workings as regards loans.

So we’ll beg to differ.

The question here is about “Free” bank accounts.

Charges issued against an account (as part of the terms and conditions) are being used by banks as a way to raise revenue, which under common law, for over 100 years, is contrary to legal precedent.
The fact remains that charges issued as part of any contract can only recover actual loss.
If they do not recover actual loss or cannot be shown to recover actual loss, which the banks cannot as their charges are not for actual loss caused by the individual account, they are in part, to recover money they have written off from the previous years business (Not my words, but the words of a certain Barclays bank chief exec when he was appearing before a parliamentary select committee, as head of the British Banking Association when all the bank charges reclaims set off)

This is why not a single bank has ever appeared before a judge with a detailed breakdown of what a bank charge price is made up of, because they do not only return actual loss from the individual account.

A bank can make profit from the interest rates it charges or an up front fee, etc, common law states that a bank cannot make profit from penalty charges which are part of a contract.
It really is that simple, until the banks stop doing this or are made to stop by legislation, this issue will run and run.

Frugal – My issue with this is simple – if a customer defaults on any part of the payment that they agreed and then takes the bank to court (or otherwise) and recovers some of the charges. The Banks are very likely not to offer overdrafts at all – only fixed loans with fixed payments so bypassing any common law. That will be to the detriment of those of us who want to use the flexibility of the unauthorised overdraft facility as being very convenient. At one time overdraft facilities were only allowed by prior arrangement. Now it is more flexible. I think that is a better arrangement.

Richard – common law on penalty charges applies to ALL contracts between two parties/people, regardless of the business.

Those who want to use an unauthorised overdraft facility as it is convenient, not a problem at all, banks actually encourage this.
The problem is that banks are not recovering actual loss with their unauthorised overdraft charges, they are making profit.
The banks know these charges are not enforceable, yet they continue issue them.

There COULD be grounds for the FSA to bring a case against banks for fraud.
What is already known is that the price of a bank charge for non payment of a direct debit/unauthorised overdraft/unauthorised card payment, etc, is set by the banks, to recover some of their losses, based on the money they wrote off in the previous financial year, in laymans terms, the money their business lost.
We know this as a former head of the british bankers association stated this before a parliamentary select committee and its recorded in hansard.
All the accounts, loans, etc, that were written off, are sold on to debt collection companies for around 10% of the balance outstanding. (eg. a default of £1000 is sold on for around £100)
IF and we dont know this, if, the bank then claims money back via their insurance for these write offs, is it declaring the money its getting back from the sell off of bad debts to their insurance company?
Are the banks declaring how much of this money is recovered by increasing the amount it charges account holders for non payment of direct debits/unauthorised overdraft fees, etc, that it has told parliament that it does?

You say, “At one time overdraft facilities were only allowed by prior arrangement. Now it is more flexible. I think that is a better arrangement”
Manipulation of a bank account for financial gain to the detriment of the individual/account holder is illegal.
You and I wouldn’t be permitted to do this, yet banks continue to do it and are allowed to get away with it. Why?

For years now banks have been manipulating accounts for financial gain.
A prime example;
Account holder buys something on their debit card, its authorised by the bank and the transaction is made.
A day later, a direct debit set up on the account comes out, sending the account say £5 overdrawn.
Now under the banking code, this direct debit should be refused and a £35 charge should be issued. (I don’t agree with the amount but thats where we are)
The bank doesn’t do this though…
The bank pays the direct debit – using all the remaining balance and takes £5 from the money set aside for the authorised card payment.
The bank then issues two charges – £25 for unauthorised overdraft and £30 for an unauthorised card payment – a total charge of £55

This is manipulation of an account for increased profit to the detriment of the account holder, have a read through the fraud act. You’ll be surprised at what banks are getting away with.
I have dealt with this occuring with my son’s account and his bank on more than one occasion. Each time I have pointed this out to his bank, they have, as if by magic, reversed all the charges and blamed “the system”
Banks control their systems and must be held accountable for them as they are for their own members of staff.

Banks provide a service they are a business, I have no issue with this.
But penalising millions of customers with charges that they have never proven is actual loss must be stopped.
It shouldn’t be down to individuals objecting to get them back, they should be acting within the law and common law and if they don’t, then remove their consumer credit licenses.

One question I’d like to know the answer to, is if the banks brought in an up front fee for a bank account, how much would it be and how would this compare to the current prices of charges being issued?
How would they be able to justify charging £20 for unauthorised overdraft when they only charge say £5 per month in an up front fee?

Having banked for 45 years with several bank in UK and abroad. I have had both Business & personal a/c’s. Cheques are old, but still necessary and they must be the most expensive to process.
Swipe cards are cheap and easy to process with the business customer paying the cost. Swipe card readers are hired by the Banking organisation (at quite a good profit now doubt) or sometime owned outright by the retailer. Bet Tesco & Co get cheap rates! The little business pays substacially more.
Now we have been largly weaned away from cash, both in our pocket and from under the mattress and the banks have us in a corner. There may be 5 or so major banks out there but they seem to behave in concert to their advantage. So they must be regulated independantly. Reasonable charges, perhaps no more than £4 / month. A not too high intrest rate for say overdraft of £500. No silly repeat penalties on a daily basis. If we choose to save with them the they must not offer silly high inducements to save with them just a good level of intrest. We all I am sure, want a Bank that is as good as their adverts would have you believe.
Now to fraud! I don’t believe the banks make enough effort to tackle it. Money from fraud must go somewhere on the system – phishing from abroad. Make the coutries of banks from abroad ( repeat destinations), responsible or don’t allow money to flow unrestricted.
Other finacial deals by the Banks -Insurance- Offer steady good prices with High Standard products without get out clauses in them and easy to understand fair conditions!!! I believe we are fed up with being conned don’t want to be “Rate Tarts.”

I would object to any upfront charge on my current account. Natwest pays zero interest on credit balances, no matter how large, whilst having the privilege of using MY money to make themselves a profit. I am always in the black so I am losing out every month. I have started transferring as much as possible into savings accounts but is there much point? Where can I get an interest rate that will even keep pace with inflation? Answer; nowhere.

So either way, the banks have us by the short-and-curleys and eagerly contribute to the rip-off culture endemic in this country today. I am of an age to remember the time when it wasn’t like this (or was it that we didn’t have the means then to access the information that we do now?).

We deport, overall, a large sum of money on which the Bank gains interest. Pay us that interest and then charge us a reasonable fee. Charges for unauthorised overdrafts etc are reasonable if priced fairly. Charges and Interest rates should be set by an Independent Body – that way everyone know what the score is. Regrettably. Banks are no longer our Friend!

Sorry – Banks are a business and so require to offer different charges to attract customers – just like ordinary shops do. It’s called competition.

I like the fact there is no charge on my current account – and would object to such a charge – as then it would change as the Bank felt fit.

Richard, if you went overdrawn without prior arrangement, by say £5 (for example) for a few days and your bank issued a charge for £25 to your account for this, would you find this acceptable?

Frugal – If the contract between the bank and myself stated there was a fixed charge of £25 for any overdraft without prior arrangement . I would be absolutely willing to pay that charge as it is acceptable.

You see I read the small print.

Richard – small print/contracts matter not.
If you go overdrawn and are charged £25, simply ring up your bank and ask for a written breakdown of the actual loss that the charge is recovering.
The problem is, you would never receive one, as the charges issued by banks are not only recovering actual loss, they are making profit from them.

Under common law, this deems the charge “a penalty charge” and is unenforceable

It would take just one bank to provide a written breakdown of a single bank charge for the floodgates to open.
This is why banks always settle out of court when a claim is made against them, in front of a judge.

It matters not which contract its in, what line of business, etc. A penalty charge is unenforceable, the banks know this, the FSA knows this (where is the information given by the banks to the FSA in the case of credit card charges?) and finally the public now know this.
The onus should not be placed on the individual to recover charges, the FSA and MPs of all parties should be putting a stop to banks making charges TODAY!

Bank’s make profits from charging interest on borrowings and only paying savers a lower amount of interest than they make in total interest from money deposited.
Charges cannot be used as fees as bank charges are charged retrospectively and as such must only recover actual loss.

The issue could be cleared up instantly if a bank was to provide a breakdown of the actual loss of a single bank charge, to either which? a small claims case judge or the FSA.
Up to now, they haven’t done this, I wonder why?


I could not care less – You asked the question and I answered it – I think it totally unacceptable to enter into an agreement and then renege on it – You may – I don’t

I could not care less whether you think it unenforceable or not – The bank enters into an agreement with you in good faith – If you then renege on it – you are at fault not the bank.

All that will happen is Banks will not offer the facility of unauthorised overdrafts – or indeed overdrafts at all. That will be to the detriment of all. They are there to make profit – they are not charities.

I think you are wrong ethically and morally. End of.


How can I be ethically and morally wrong, when hundreds of thousands of people are losing their hard earned money, because banks issue charges which under common law they should not be doing?

Banks are reusing money from individual accounts to increase the level of unenforceable charges, is that the bank acting in “good faith?” – I think not!

Banks make their profits from interest, NOT charges, its not a case of me personally thinking charges are unenforceable or not, its a fact that common law states they cannot.
If you seriously believe that banks will not offer the unauthorised overdraft facility, you are wrong.
Banks are activating unauthorised overdrafts on accounts where it is not possible to have an overdraft, they are also acting to the detriment of the account holder, when they serve written notice to the bank that any direct debits, card payments, etc, that would cause a negative balance should not be paid, I know of not one bank that does not ignore these requests.

“The bank enters into an agreement with you in good faith – If you renege on it – you are are at fault not the bank”
So what happens when the account holder gets paid on a friday and the company taking out a direct debit a day earlier? Where’s the account holder’s control then?
Hours spent on the phone being passed from pillar to post with little or no success in recovering the bank charge.
What about all the cases where banks have removed money from an account for charges, taking money paid into said account as part of their unemployment benefits, which is illegal?

I think it is you that is ethically and morally “wrong.” End of.

Frugal – My last communication with you.

When I enter a contract with anybody – I expect it to be honoured including penalty clauses. My Bank states clearly unauthorised overdraft to £250 is free – unauthorised overdraft £251 is a £25 fee, If you don’t agree leave the bank before incurring an overdraft.

I consider anyone not honouring their agreement dishonourable. I would never enter into any form of contract with such a person – I consider them totally untrustworthy and ethically and morally wrong



So the hundreds of thousands of people who have had Millions of pounds of bank charges refunded, as not a single bank will produce a breakdown of a single bank charge placed on an account, to prove the charge is recovering actual loss, are in your view “Untrustworthy, ethically and morally wrong”

I’m sure that Stephen Hone and other campaigners that help the public reclaim their bank charges for no reward, are not untrustworthy, ethically or morally wrong!

John K says:
13 May 2011

I may have my head in the sand but I don’t want to pay bank charges up front. I don’t go into the red or have an overdraft. I am lucky in this respect I agree. I know I don’t get interest on my current account but if I did it would be taxed! I am happy with the way things are. Sorry if this doesn’t fit with the general view.

I really dont see why as long as the charges are made clear banks cant offer accounts with whatever charging structures they want.
They could always offer more than one “tariff”, a “free” system, one based on transaction numbers etc, and a monthly fee based system.
The customers and market forces will decide which are successful , it isnt as if there is little choice when choosing a bank!

Manon says:
14 May 2011

I want a bank account that allows me to write cheques, pay regular bills by DD or AD and receve money received either by cheque or by transfer and a direct debit card.
Call that the old fashioned current account. It cost nothing and it didn’t pay any interest.
I do not want mortagages, loans, insurance policies. Neither do I want to pay a fixed monthly fee so that other people, who cannot manage THEIR money, can go into overdraft without paying for it. I am already picking up their biggest debt, their mortagage, by subsidizing their interest rate by receiving a next to nothing interest over my life’s savings.
Banks have already shifted a lot of their costs to the customer by sending e-statements (if you can get hold of your PIN number and when that goes wrong, there is no way you can find out what is going on in your account,), introducing 084 telephone numbers (remember the days you could ring them free of charge?) and abolishing free envelopes for posting cheques. Now they want to abolish cheques. They are forcing us to switch to credit cards and debit cards, and each of those transactions brings them a lot of money. How are ordinary people, small charities supposed to cope with the additional cost???
I want to be able to contact the bank by phone, 24/24. And a much tougher complaint system. The reliance on internet all the time is environmentally unfriendly, since it means the need a computer (which needs to be built and later disposed of)
The suggestion that the basic fee should be £ 4,99 is way over what one pays for a minimum service package in many other EU countries (for example 1.25 euros/month in NL and FR, free in LUX).
And let’s not talk about the money the banks rake in when they handle euro/£ transfers…..

I’m obsessive about managing to stay out of debt – keeping track of all transactions – and so far it’s been OK – paying one child’s rent etc. at uni and ‘looking forward’ to doing the same for the next. I don’t expect the bank to lend me money for no charge and equally I hope not to pay a monthly fee so that my bank can afford to lend to other people for no charge. If I have a crisis, I’m still in good relations with my family and then there’s social security – I’d expect to change how I live and expect to pay for any loans.
I have no objection at all to accounts allowing an overdraft and carrying a monthly fee – as long as I don’t have to have one!
Can you all remember when we first saw interest on current account balances which we’d never had before? We moved our money to the first ones to introduce it. They all caught up in their own ways, to stay in business. Then ‘get a free cuddly toy’ (well OK not cuddly toy, but mobile phone insurance, AA membership or various things) ‘if you stay in credit by £x’. Then ‘actually we’re charging for that now’. Now ‘actually no interest’. They’re just trying to attract us to them instead of their rivals – just like any other business.
I’m for no monthly fees thanks.

Actually I have found that First Direct no longer needs around £1000 balance in the current account to have no charges on the overall bank balance – provided you do not go into debt. Which is even better.