Interest rate cuts could mean free banking comes to an end

A recent report has suggested that the fact that the base interest rate in the UK is now at a record low, and could even fall further, means that the nation could see free banking services come to an end. Read more

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Bank customers warned to avoid fee-paying accounts

Bank customers paying fees for packaged accounts are getting very little for their money compared with customers in free accounts, according to new research.

Findings from MoneyExpert revealed that the average credit interest rate on packaged accounts is 2.1 per cent per month, only 0.2 per cent more than the average rate available through free banking.

The average monthly fee of a packaged account is £11.61, with some accounts charging as much as £25 a month.

Sean Gardner, chief executive of MoneyExpert.com, said: “The basics of a typical fee-paying current account are frankly terrible value for money.”

“You don’t have to be a mathematician to see how an average interest rate of just 2.1 per cent compares to free banking if you have to pay a typical fee of £11 for the privilege,” he added.

The figures show that over half of all packaged accounts pay less than 2.5 per cent AER on positive balances.

Meanwhile, financial experts Fool.co.uk said that there are “lots of good offers” on the bank account market due to the effects of the credit crunch.

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Defaqto: ‘2yrs of free banking left’

The end of free banking could be upon us within just two years, according to leading research firm Defaqto.

According to the company, the backlash from increased pressure on banks to reduce penalty charges could see consumers being charged a tariff for their bank accounts.

Defaqto says that this could rear its head as either a monthly fee or a pay-as-you-go system, which would see customers charged in relation to how often they use their account.

Any system like the latter could leave vulnerable people in a worse situation than they are currently in, especially if additional charges are added for the processing of things like cheques or discounts are offered to those using other bank services.

The UK has enjoyed free banking for 23 years, but Defaqto warns that the banks have to make up the money in some way.

“I will be very surprised if free banking is universally available in two years time,” said David Black, head of banking at Defaqto.

“The first major provider to introduce charges for all customers is going to take a lot of flak but it is likely that the majority of the main providers will then follow the lead.

“I would then expect to see a significant increase in account switching as well as many people closing their secondary accounts,” he added.

The UK is currently internationally unique in not charging customers for current accounts.

Tags: flak, customer, research firm, free banking, provider, relation, vulnerable people