Jeff Prestridge Personal Finance Editor
Like a dish of battered fish, chips and mushy peas, free banking for those who stay in credit is an integral part of this country’s DNA. It’s a financial right that should not be taken away from us – not now, not in the near future, not ever. So when HSBC indicated last week that it is considering doing away with free current account banking services, I baulked at the prospect as I am sure many readers will have done.
Yet again, just when we need our banking industry to do the right thing, they think about doing the exact opposite. That is, profits first, customers a long way behind. Inexcusable. Unacceptable.
We’ve seen examples of unfriendly banking behaviour many times before, so we shouldn’t be surprised. After all, it was the banks that triggered the 2008 financial crisis and brought the country to its knees – and then treated some of their business customers in its ruinous aftermath quite despicably.
And it was the banks that sold worthless payment protection insurance by the bucket-load without a hint of apology. More recently, they’ve taken a scythe to both their branch and cash machine networks, even if it’s meant leaving entire communities bankless. No consideration for ‘community’ – the fabric of our society. Just ruthless, destructive cost cutting. Scandalously, the regulator and the Government have watched all this from the sidelines without batting an eyelid.
While HSBC’s threats may come to nothing – after all, the end of free banking has been a recurring personal finance threat for many years – it seems we are edging ever closer to a banking market where fee-charging accounts are the norm and free accounts the exception. It will only take one of the big banks to introduce fees on all its current accounts for their rivals to follow suit lemming-like.
Of course, the pandemic has given the banks the perfect excuse. Low interest rates have already eaten into their profits – Lloyds excepted – and it is likely profits will come under even more pressure in the months ahead as unemployment rises, businesses fail and customers are unable to meet their loan repayments. The search for replacement revenue will inevitably point the dial in the direction of current account fees.
If they go down this route, it is bound to cause a customer revolt. Whenever I have written about the possible ending of free banking, the response from readers has been one of outrage. They argue, quite rightly, that ‘free’ banking is a reward for thrift over extravagance – in other words, for running their bank account in a sensible way.
The quid pro quo is that in exchange for getting free banking, they earn no interest on the money tucked away in their account. It’s a deal customers understand and are comfortable with. Fairer, they say, than fee-charging ‘reward’ accounts where the rewards – free travel insurance, free mobile phone insurance – aren’t always as attractive as they appear in the marketing brochures.
Yes, you can argue that the ‘free’ current account market unfairly discriminates against those who temporarily go overdrawn – with punitive interest rates of 40 per cent-plus (free £500 overdrafts, a response to the pandemic, were withdrawn yesterday). But if the City regulator had done its job properly last year when it reviewed overdraft charges with a view to introducing a ‘fairer’ regime, onerous interest charges would not now be an issue.
Baroness Altmann has earned a reputation over the years for being a consumer champion. In the early 2000s, alongside The Mail on Sunday, she fought for justice for workers who lost a big slice of their pension when their employer went bust, leaving in a place an underfunded pension scheme unable to meet all its promises. Last week, she said that charging customers for interest-free current accounts represented a ‘step too far’.
She added: ‘Banks are taking advantage of customers in so many ways. Charges for credit cards and overdrafts are already high and interest rates for savers are almost non-existent. So I would hope that customers who just want to hold balances in their current account can continue to enjoy free banking.’ Absolutely. Maybe some banks (the Starlings and Metros of this world) will stand firm if the big ‘high street’ players go down the fee charging route – in the hope of picking up new business. Yet customers remain notoriously reticent to change provider despite newish switching rules aimed at making the process as stress-free as possible.
Furthermore, Starling is mobile-only so would not appeal to everyone, while Metro, for all its customer focus, is not without big issues of its own – namely battling to meet strict capital requirements demanded by the City regulator. I have a feeling that the banks are going to attempt to leg us over yet again. We should resist. Fish, chips, mushy peas and free banking should remain a British tradition.
RACHEL RICKARD STRAUS Deputy Personal Finance Editor
Don’t get me wrong, I love free banking. I’ve not been charged a penny by my bank since the happy day I paid off my overdraft a few years ago. Except my bank account is not free. It’s being paid for by someone else. Free bank accounts are an illusion. Just think of the infrastructure that goes into making sure there is cash available in ATM machines; that there is someone on the other end of the phone to answer your queries; and that you can securely check your bank balance at any time of the day or night.
Every time you are issued with a new debit card, get a statement in the post or phone your bank about fraud, someone is stumping up for it. And if that person is not you, it’s likely to be someone poorer than you. Because when banks don’t pass on their costs, they recoup them in other, crueller or more conniving ways. They do it by kicking people when they are down, whacking them with usurious overcharge fees at the very moment they can least afford them.
Banks made more than £2.4billion from overdraft fees in 2017 according to the latest official figures. People living in deprived areas were hit hardest.
They also recover costs by flogging products we don’t need (think mis-sold payment protection insurance) and relying on our inertia to give loyal customers a rubbish deal.
Banks have a reputation for ripping off customers. We can continue trying to tackle their dastardly behaviour with fines, public shaming and regulation. But we’ve been trying this approach for years and it hasn’t worked. There is no guarantee that banks would shape up if they started charging for banking. But they do not stand a chance of changing their behaviour while they keep up the fallacy of free banking. What’s more, negative interest rates would only make their behaviour worse.
The other way banks make money is by paying savers less interest than they charge borrowers – and profiting from the difference. The higher the spread between the two rates, the more money the banks make. If we move towards negative interest rates, this spread will narrow and squeeze bank profits further. They will look for other ways to make money and cover the cost of banking services.
And let me tell you, it will not be pretty. For example, they may start charging more on currency exchange and increase borrowing costs. They will find all manner of sneaky ways – they always do.
Of course, having a bank account should not be limited to people who can afford it. But that issue is already covered by the financial regulator.
Every major bank is obliged to offer a free basic account, open to anyone who needs one. You can open one without a passport, home address or if you have a poor credit score. The principle is that everyone should have access to banking. With this protection in place, I think the rest of us who can afford to, should stump up.
Ending free banking could also lead to better customer service for all of us. If you get something for free, you are far less likely to scrutinise whether you’re getting good value for money.
It’s no wonder most of us stay with our first bank for decades, no matter how badly they treat us over the years. But we may be a lot less tolerant of poor service if we see banks rewarding themselves by reaching into our current accounts month in month out.
The current account switching service is hassle free, takes under seven days and 91 per cent of those who have used it in the last three years said they were satisfied. Even so, just over 777,000 people switched in the past 12 months, figures released on Thursday show. We need to switch more and more often to keep banks on their toes.
I could pay for a bank account now. But I don’t want a fancy paid-for account with bells and whistles designed to make me feel special and to justify the cost.
I’m not interested in a metal debit card as fintech bank Monzo offers with its new ‘Plus’ account. I don’t want free access to soulless airport lounges. I don’t need to feel like I’ve joined an exclusive club by paying for an account grandly labelled ‘platinum’ or ‘premium’.
I’d just like to pay my own way.
Banks should start charging for current accounts because it’s the honest, transparent thing to do.
It’s time banks came clean: ‘free’ banking costs us dearly.