Free banking now ‘a myth’ – Which?

That is the conclusion of a report by the Which? consumer organisation which has been called “disingenous” by the British Bankers’ Association (BBA).

The report says banks make money from supposedly free accounts by charging up to 19.9 per cent interest on agreed overdrafts – more than many credit cards and personal loans – and through “hefty fees” for overseas transactions.

Which? is calling on the banks to act in a more transparent way so customers understand the charges they face.

‘Myth’

Which? chief executive Peter Vicary-Smith said: “When some people are paying up to £900 a year in bank charges it completely shatters the myth that banking is free.”

The BBA rejected the concerns about the threat to free banking, saying this was still available for accessing cash and making most types of transactions.

It said consumers would expect to pay to go overdrawn because they were borrowing money, while overseas charges were often beyond banks’ control.

The suggestion that banks should increase charges to avoid more scandals defies logic and is a slap in the face for consumers. Peter Vicary-Smith, Which?

Variation

Which? said charges for unauthorised overdrafts varied greatly between banks.

The Halifax reward current account charges £120 a year for going into the red for two days in a row every month, whereas at the other end of the scale the Yorkshire/Clydesdale Bank current account plus charges £900 a year in the same circumstances.

Many banks, including RBS/NatWest and HSBC, charge an annual percentage rate of 19.9 per cent for authorised overdrafts.

First Trust Bank’s classic account charges £185 a year for being overdrawn by £200 six days a month.

More than six in 10 people surveyed said they had paid a charge they considered unfair, hidden or disproportionate, while 94 per ceny thought banks should be more transparent about their charges.

But Which? rejected calls for all banks to charge for current accounts as “worrying”.

Scandals

Mr Vicary-Smith said: “The suggestion that banks should increase charges to avoid more scandals defies logic and is a slap in the face for consumers who are being hit hard by one of the worst financial crises in recent times.

“It’s a disgrace that the very people who bailed out the banks are being asked to pay more for the most basic accounts, while the industry continues to be rocked by scandals like PPI mis-selling, Libor rate-rigging and IT failures.”

But the BBA said charges could be avoided by not going overdrawn, with most customers continuing to enjoy free banking.

It added: “All banks publish a clear tariff of charges on their websites and provide customers with an annual summary of the transactions passing through their account including a breakdown of any interest and other charges.

“If a customer wants to switch to another bank it’s easy to do so and the industry is working towards making the process even easier.”