HSBC Becomes First UK Bank To End ‘Free’ Banking

20 years after HSBC and Barclays introduced the concept of free banking to the UK, HSBC have announced that it is now time to pull the plug on this popular product and re-introduce a charge for using its banking services.

At present, HSBC has announced that it will limit charging the fee to its online banking arm, First Direct.  Moreover, the fee charge of £10 per month will not be applied to all customers of First Direct.  The “lucky” First Direct customers who will find themselves subject to the £10 monthly fee will be those who fail to make deposits of at least £1,500 per month or those who do not maintain an average balance of £1,500 on their current accounts.

While it is true to say that the UK has remained one of a very few select countries to maintain free current account banking for those bank customers who do not go overdrawn, over time this has probably been one of the most popular products that major UK banks have offered.  Nevertheless, it seems, in this case, that the success of free current account banking in the UK has also been its eventual down-fall, with many leading UK banks having made grumbling noises over the past year or so that the because the UK has free current account banking, this no longer makes the banks competitive with their European and American competition, the majority of whom already charge for current account services.

To many of the 1.3 million customers of First Direct, however, this is going to be a bitter pill to swallow.  UK banks made record profits in 2005, so to now be told that the bank is no longer competitive with its overseas rivals merely because it has not been arbitrarily applying a monthly fee  £10 on certain financially disadvantaged customers may just sound a little like sour grapes.

Thankfully, other leading UK banks, such as Royal Bank of Scotland, Barclays, HBOS and Lloyds TSB, have decided not to follow the lead of HSBC at this time.  However, with most UK bank’s looking to recoup the estimated £1 billion in lost revenue following the Office of Fair Trading’s forced cut to penalties applied on late credit card payments, it would need optimism of the highest order to believe they won’t follow suit soon, a view clearly echoed by a spokeswomen for Royal Bank of Scotland, owners of Nat West, who, when asked RBS’s stance on the issue, was quoted as saying that: “There are no current plans, but you can never completely rule options out in the long term”.

In the meantime, the estimated 200,000 customers of First Direct who are likely to be directly affected by this latest move now have until February 2007, when the new charges will come into effect, to either get their accounts in order so that they do not fall foul of the new charges or to look for alternative free banking arrangements. 

Kindly, however, First Direct have given the 200,000 or so estimated customers it says will likely be effected by this move a ‘get out of jail’ free card: the bank will agree to waive the fee if the customer agrees to take out another First Direct product – such as a loan or insurance. 

Tags: Loans, uk, lloyds, charges, fees, Banking, Insurance