How cheap are bank accounts in Britain?

The consumer organisation says some current account customers are being charged up to £900 a year for being overdrawn without permission, which “shatters the myth” of free banking.

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

But the British Bankers’ Association (BBA) says concerns about the threat to free banking are overstated and that this is still available for accessing cash and making most types of transactions.

It believes consumers expect to pay to go overdrawn because they are borrowing money. So how good a deal do current account customers in Britain receive?

Comparisons

Recent comparisons are hard to come by, but a report for the European Commission in 2009 found that “Italy and Spain have the most costly accounts in the EU”, with Latvia, France and Austria also “consistently among the most expensive countries”.

At the other end of the scale, Bulgaria and Portugal “consistently secure low rankings, implying that current accounts are inexpensive in these countries for all customer profiles”. The costs of current accounts in Belgium and Holland “were also found to be low”.

In the UK, costs borne by the “average” current account customer were ranked as the seventh highest in the EU.

A BBA spokesman told Channel 4 News that these costs included fees paid by customers with overdrafts that had not been pre-arranged and were therefore more expensive than those that had been agreed with banks beforehand.

Research for the BBA in 2006 found that Britain compared favourably with many other countries on the cost of bank accounts.

The study, carried out by Oxera Consulting, showed that for current accounts, loans, savings accounts and credit card users who pay back their monthly balance in full, “the UK is one of the cheapest countries for a number of typical customer profiles using typical services”.

British banks were also commended for being “amongst the most transparent in their presentation of infortmation about fees for their services”.

Comparing annual fees on current accounts paid by the average family, the research showed that Holland was the only country in the study that gave the consumer a better deal. Italy was the most expensive, followed by Australia and France.

Customers

David Llewellyn, professor of banking and finance at Loughborough University and independent assessor on the Oxera study, told Channel 4 News: “The key conclusion that I found is that if you’re a good customer, you obey the rules, you don’t have an unauthorised overdraft, you pay your credit cards on time, then British banks are cheaper than other banks.

“But if you’re a naughty customer, the charges are higher than anywhere else. My feeling is that those conditions still apply.”