Your Money: Farewell to free banking

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BANKS have a choice. Either they pay us a decent rate of interest on our deposits and charge us a reasonable amount for their service, or they fudge the issue.

They should not be allowed to get away with charges and lousy rates of interest.

Of course, consumers welcomed being paid interest on current accounts. The costs of running the 'free' banking services were hidden in the gap between the rate of interest the bank could earn on the cash and the amount they paid out.

When interest rates were high, the gap was wide enough to deliver a rate that the customers thought worth while. But now rates have come down, there is not enough room for manoeuvre.

Most of the banks have cut back the rates paid to customers to 0.38 per cent net. That leaves neither side feeling happy. Something has to give, say the banks - and that's free banking.

The rumbles have been heard all year long. Only Save & Prosper, a tiny banking operation run by Flemings, has taken the plunge so far.

But now Abbey National has turned up the heat by announcing that it is on the verge of imposing charges on its current accounts.

The debate has turned to how to charge, rather than whether to. Abbey is leaning towards giving customers a choice: either an account with a fixed charge and some bells and whistles such as discounts on travel, or an account that only charges if it dips below a set minimum.

When Abbey moves, the rest will not be far behind. Otherwise, the last bank to impose charges is going to be left with all the customers that the other banks edged out. This is the reverse of competition for customers - it is competition to avoid them.

But banks can be more creative and devise streamlined simple accounts that will suit the customer with streamlined pockets. The accounts aimed at the young with a plastic card for cash machines, but no chequebook, could provide a model. And there are plenty of pensioners who could be customers if the Government abandons paying pensions through post offices.

The banks are trying to soften us to take charges on current accounts in the black without complaining.

Perhaps surprisingly, the Consumers' Association is on their side already. It believes that those in debt are currently subsidising those being paid interest on money in their accounts.

Banks are expensive to run. Just look at those massive stone portals on every high street, look at all those people, and the fancy machinery. It clearly costs a lot. It is an arbitrary decision how the costs are split between the various types of business, and between private customers.

But whether there is a charge for every cheque and standing order, or a straight monthly fee ( pounds 5 a month will seem so much cheaper than pounds 60 a year), it will have to seem like a decent deal.

Banks and building societies running current accounts may think that they, collectively, have a captive horde, but if things get too sour, foreign banks and smaller outfits with banking licences in this country that can start with a clean sheet will move in to lessen the pain of paying for banking.

TO SOME, the last decade has been the age of consumer complaints bodies, ombudsmen and compensation schemes.

Now the National Consumer Council has proposed a statutory organisation to oversee all the ombudsmen. Some umbrella body, the National Complaints Board perhaps, could be responsible not only for monitoring the workings of the various schemes, but also for directing complainants to the right place.

The muddle over the elderly with disastrous home income plans has shown the need for a more focused approach. The legality of the current set-up where most clients of insurance company reps go to the Insurance Ombudsman has been thrown into doubt by an arbitration decision. This puts complaints about mortgages, even if they are linked to an insurance-based policy, outside the ambit of the Ombudsman.

Sir Bryan Carsberg, the Director General of Fair Trading, is talking about pulling mortgages into the Financial Services Act. They are the largest transaction most of us undertake in our lives. So when sharp practice means salesmen get huge commission payments for selling dubious home income plans or low-start mortgages, those who face losing their homes cannot be left out in the cold.