S&P will charge on accounts in credit

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CURRENT account customers with Save & Prosper will have to pay bank charges on accounts in credit, paving the way for other banks to start charging for current accounts.

The banking division of Robert Fleming bank is set to make an announcement today giving its banking customers two months notice of the change.

Save & Prosper's banking director, Ian Lindsay, confirmed that charges were being introduced. He said details would be given first to customers. But it is likely that the interest rate paid to customers with low balances would be increased to offset the new monthly charge of around pounds 5. Those with balances above pounds 1,000 would be no worse off.

The banks argue that people with low balances in their accounts are costing them money, and are being cross-subsidised by those who hold large sums in their current accounts.

All the banks have seen their profit margins squeezed as interest rates have fallen, and cannot make interest-bearing accounts pay their way. As interest rates have fallen it has been impossible to maintain sufficient margins. Several of the high street clearing banks are believed to be anxious to follow Save & Prosper.

Save & Prosper's Classic account pays 0.75 per cent net on balances under pounds 1,000, 1.89 per cent net on pounds 1,000 to pounds 5,000, and 3.43 per cent net on higher sums.

As rates have fallen, the high street banks have found it difficult to cut the rates paid on their current accounts any further. After the latest one-point cut in interest rates, Abbey National is still paying the old rate of 0.38 per cent net on its current account. Lloyds has maintained the rates on its Classic account at 0.75 per cent net on pounds 5,000 plus and 0.38 per cent net on pounds 1,000 to pounds 5,000, but the rate paid on smaller sums has shrunk to 0.15 per cent net.

Several years ago Midland Bank dabbled with charges for a current account. The Vector account has monthly charges of pounds 11 and a free pounds 250 overdraft, but it is no longer available.

The Consumers' Association believes that charging for bank services is inevitable. A spokesman said it was unsatisfactory for those in debt to be paying more to subsidise those being paid interest on current accounts.