The true cost of banking?

Which? claims that the ‘myth’ of free banking is shattered by the research. Banks are defending their charging practice and challenging the Which? research findings.

Which? states that the research has uncovered huge variations in the cost of ‘free’ current accounts between banks, where charges for going overdrawn for two days per month without permission can range from £120 to £900 a year. Even customers with authorised overdrafts may rack up significant charges with many banks, including RBS/Natwest and HSBC, charging an annual percentage rate (APR) of 19.9% – higher than many credit cards and personal loans

A spokesman for the British Bankers’ Association, which represents the banking industry, SAID, “Which? is being disingenuous equating the costs of certain specific services to the costs of a current account, when customers generally pay nothing for current accounts. The costs used by Which? are for borrowing money – a service for which everyone would expect to pay.”

A spokesman for the Yorkshire/Clydesdale bank said that their charge of £75 would only be incurred if someone is overdrawn without prior authorisation two consecutive days in a month and then makes another payment.

There is little doubt that there are feelings of frustration and mistrust among those current account customers asked by Which? how they felt about bank charges. When at the end of June over 2,000 consumers were asked how they felt, six in ten (62%) people surveyed said they had paid a bank charge that they thought was unfair, hidden or disproportionate. The majority of people (94%) surveyed thought the banks should be more transparent about charges on their account.

Worryingly, Which? also reported that consumers who stayed in credit could also be hit through lost interest and hefty fees for withdrawing and spending cash abroad. For example, in such circumstances, Natwest Select and Lloyds TSB Classic account customers who stay in credit with an average balance of £1,500 could lose out on £63 a year – through missing out on £48 interest a year which they could earn in a Which? Best Rate instant-access savings account, plus the additional charges of nearly £15 for making two £100 cash withdrawals and two £50 direct debit card payments while overseas.

A key question is, how well do customers understand the nature and variations in charges for accounts and services across a raft of different charging systems, so that they are able to make informed decisions about what they need and can get from banks? Are transparency and clarity strong suits in banking information provided for customers, or is the ‘devil in the detail’ or small print?

Comments coming from the banking sector suggest that the way to avoid future banking scandals is for banks to charge for current accounts. This idea is reinforced by a senior executive at the Financial Services Authority, who says that regulatory intervention might be needed to instruct banks to charge for current accounts: all worrying messages for the consumer.

Of course, the more sceptical of us consumers might soon therefore expect a fee for our current account, and then a range of other charges added on, for other specific services and transgressions, just as before!