Current account changes mean end of free banking

Free accounts are now outnumbered by paid-for ones and could disappear altogether within three years, reports Simon Read

Paid-for current accounts are growing in popularity. Not necessarily with customers, but definitely with the banks. In fact, the number of accounts banks offer that charge a fee has grown by 94 per cent over the last four years, according to figures from analysts Defaqto. At the same time the average monthly fee has soared by 42 per cent.

But the biggest signpost to the way things are going in the current account market is the fact that there are now more paid-for accounts than there are free ones. Defaqto says There are now 64 paid-for packaged current accounts available compared to 61 standard free current accounts.

While there may be a rationale for some people to pay for their banking, for most of us a plain ordinary free account will do fine. But the banks don't want us to have them, which is why they're launching more and more different deals designed to persuade us to switch. Their plan is simply to consign the notion of free banking to the dustbin. And experts suspect they'll succeed, even within the next couple of years.

"We're edging towards the ending of free banking," predicts David Black of Defaqto. "Banks are softening people up with a range of added-value accounts. I reckon free banking could disappear within the next two to three years."

Andrew Hagger, of Moneynet.co.uk, agrees. "The end of free banking seems to be drawing ominously nearer as the banks continue to focus on revenue-driven packaged accounts," he says. In other words, the banks want to make money on the accounts they offer, rather than using current accounts as a loss-leader to sell other services to us.

On one hand, that's fair enough. There are costs involved in running a current account so why shouldn't we pay for them? But, as ever, banks are using slightly underhand tactics to persuade us to open their fee-paying accounts. A link to a high-paying savings account, for instance, can look a good deal. But when you realise the relatively small amounts you can lock away in the high-paying accounts, many people may actually be better off elsewhere.

It's generally accepted that people are more likely to leave their partner than switch their bank account, but it's time to change things. Switching accounts has never been easier (see box right), and doing so can lead to savings. "However, choose an account that's right for you for the long term rather than being swayed by short-term offers of credit interest on your account which will all but disappear after 12 months," says Hagger.

The problem for anyone comparing current accounts these days is that there are a range of different ways of charging. So just looking at APRs and penalty charges isn't enough. You need to find out whether you need to pay in a minimum monthly amount to qualify for an account. The criteria can vary quite widely. For example, the Barclays Bank Account and Nationwide Building Society Flex account have no minimum, while Santander and Halifax require £1,000 per month and First Direct £1,500.

"You also need to understand how much you'll be charged for dipping into the red," says Hagger.

"For unauthorised borrowing you can pay interest rates ranging from 12.9 per cent to almost 30 per cent, however to confuse matters even further some banks charge a set daily fee instead of interest."

Alliance & Leicester, for example, charges 50p per day while Halifax charges £1, or £2 if the overdraft rises higher than £2,500.

Meanwhile, unauthorised interest rates can be as high as 28.7 per cent with Santander, while the monthly fee that some banks charge on top ranges from Santander's £25 to Lloyds TSB's £15 and £20 with NatWest, RBS and Nationwide. Against that Barclays charges a £22 personal reserve fee per five-day period. Which is cheaper? It's very difficult to work out.

If you don't go into the red and are attracted by some of the "extras" that the paid-for accounts offer, how can you work out which is best? "People need to examine the level of benefits offered closely to ensure they are choosing a product that's right for them," advises Black. "Some of the travel insurances offered, for instance, are good for older people, who may have difficulty tracking down reasonably priced cover."

What other extras are offered? The most common is commission-free currency, which is offered on nine out of 10 accounts, closely followed by travel insurance which are included in eight out of 10 accounts. Four out of five offer deals on special high-rate savings accounts, while many offer phone insurance or motor breakdown cover.

Moneysupermarket research suggests that the most popular reason for switching current accounts is for a better in-credit interest rate. But there could be other financial reasons for switching. Nationwide, for instance, offers hard-to-find 90 per cent mortgages to customers of its free Flex account, which could be attractive to first-time buyers.

Is it time for a campaign for free banking? It seems likely banks will find a way to charge us one way or another, so switching to get the best value now could prove a wise choice later.

Switching accounts

* Switching accounts is much simpler than you may think. Banks have been forced by regulators to speed up the process and not put barriers in people's way. In fact many banks now employ dedicated teams to manage the switching process. "So there's no excuse for paying for an account that doesn't work for you or for putting up with poor customer service," says Andrew Hagger of Moneynet.co.uk. "Vote with your feet and start looking after your own bottom line." ......... Bacs, the company behind direct debit, says its research shows that four out of five people switching or attempting to switch their bank or building society within the last five years have been ......... satisfied with the overall process.

Bacs' Family Finance Tracker research also shows that nearly a third of Britain's adults have switched the bank or building society where they hold their main current account, with 70 per cent of people saying they did not experience any problems during the process. A fifth of adults switching or attempting to switch actually did so within the last 12 months. Mike Hutchinson, head of marketing at Bacs, says: "Switching bank or building society accounts is a simple process which people should not be frightened to embark on."

Information on switching your bank account is available on Bacs' website. There's also a useful step-by-step guide, designed to answers people's most frequently asked questions.

Copies of the Bacs' Account switching guide are available to download from: www.thesmartwaytopay.co.uk/accountswitching

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

    $125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Day In a Page

    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas
    La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

    Deaf community outraged by La Famille Bélier

    The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
    10 best high-end laptops

    10 best high-end laptops

    From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

    The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
    Susie Wolff: A driving force in battle for equality behind the wheel

    Susie Wolff: A driving force in battle for equality behind the wheel

    The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
    Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

    'No abs Adam' plans to muscle in on Usain Bolt's turf

    After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
    Calls for a military mental health 'quality mark'

    Homeless Veterans campaign

    Expert calls for military mental health 'quality mark'
    Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

    Meet Racton Man

    Analysis shows famous skeleton was a 6ft Bronze Age superman
    Garden Bridge: St Paul’s adds to £175m project’s troubled waters

    Garden Bridge

    St Paul’s adds to £175m project’s troubled waters
    Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

    Stuff your own Christmas mouse ornament

    An evening class in taxidermy with a festive feel
    Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

    Joint Enterprise

    The legal doctrine which critics say has caused hundreds of miscarriages of justice
    Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

    Freud and Eros

    Love, Lust and Longing at the Freud Museum