Simon Read: 'So the best things in life are free? That might not be the case with bank accounts'

If it really does cost the banks to provide the service, should they pass that cost on to all customers?

The debate about free banking goes on. Several senior bankers have suggested to me that it's only a matter of time before the high-street banks have to start charging for current accounts to cover the costs of what are often loss-leading products.

By that they mean that with some accounts paying interest and not charging at all for transactions while people stay in the black, maintaining our accounts actually costs them money. Of course banks make that back by charging a mint to anyone who dares to go into the red without permission. In other words, the vulnerable hard-up have to pay heavily for our free banking.

It's this that has led to a campaign for everyone to pay the same for banking; if it really does cost the banks to provide the service then they should pass that cost on to all customers, not just prey on those in financial difficulties. I have some sympathy with this argument. If there is a cost for writing a cheque or arranging a transfer, and we know how much that is, we could all make better use of our bank accounts.

But I also have some sympathy with reader Stephen Hirst, who wrote to me this week. "Over the last few years I've seen lots of press comment on the subject of free banking suggesting the cost of administering my current account is born wholly by the bank.

"This is not my understanding of how banks work. I have an account with a high-street bank, never have an overdraft and never borrow. But I do, like millions of others, always keep £1,500 in my account to allow me to make a large purchase without the risk of incurring an overdraft.

"I receive no interest on the money. I have always assumed that banks use the cash in my account to invest and make a profit for themselves. I'm not getting free banking, I'm paying for it through an interest-free loan to the bank. If I'm right about how banks work, why do we keep hearing the term 'free banking'?"

I put his question to the British Bankers' Association. Its response? "Banks make profit by looking after customers' deposited money and lending it out to people who want to borrow. In many other countries, banks charge customers to open an account and look after their money; in this country, it is free, which we believe is a good thing."

The response seems to miss many larger points, sadly. But then it's ever been thus with banks, hasn't it?

s.read@independent.co.uk

twitter: @simonnread