The UK is one of few European countries that offers ‘free’ banking. In most other places individuals have to pay for everyday banking transactions such as paying money into their account or transferring money to another account.
However, the days of free banking here in Britain could be numbered and some would argue that we don’t really bank for free even now because of the charges that are levied for things such as going overdrawn without permission or exceeding your overdraft limit. This is the view held by Andrew Bailey, executive director of the Bank of England who suggests that so-called ‘free’ banking is a fallacy that allows banks to inflate fees elsewhere.
Whatever your thoughts, let’s take a look at what an end to free banking might mean…
Changing the way we bank
It is estimated that around 20% of current account holders have packaged accounts and voluntarily pay a monthly fee to their banks in return for extras on their accounts such as breakdown cover and travel insurance.
In addition, a quick check online shows that around a third of current accounts listed on comparison website MoneySupermarket are packaged accounts, which gives a good indication of their popularity.
However, at the end of May, Barclays announced that it was replacing all of its packaged accounts with just one account that would allow both new and existing customers to choose what extras, or ‘packs’, they want as part of their banking package.
On the surface this may just seem like a fairer way of offering additional products that customers want but it is also a way to make the idea of paying for banking services more appealing as well as a way of getting customers used to it.
The beginning of the end for free banking
It’s been about a year since RBS announced that its basic bank account customers, including those with Halifax accounts, would no longer enjoy free cash withdrawals from ATMs, but did this signal the beginning of the end for free banking?
As it stands, anyone looking to open a bank account has a pretty easy decision to make based upon their financial circumstances. If they’re in credit then they choose the bank that offers the best incentive or interest rates. Those in debt, on the other hand, need to consider the banks with the lowest overdraft interest fees and charges.
However, if charges are applied to basic banking services then this will also have to be factored in and it is unclear whether banks would subsequently drop transaction-based ATM charges or whether fees would be tiered according to not only your bank balance but other products you hold with them.
If this is the case then customers could potentially be mis-sold products they neither want or need in order to get a better rate on their current account.
It’s not all over yet
Whatever your thoughts on this matter, banks are not only offering free services but, in some cases, are even prepared to pay for your custom, especially if you are prepared to switch accounts.
So it’s worth taking a look around at what the banks have to offer and see if you can make some money out of them while you still can.