Is free banking set to end in the UK?
First published - Monday 20th, November 2006
More than 90% of the population in the UK have a bank account. In general this is a current account and everyday transactions such as deposits, withdrawals and direct debits are carried out free of charge, as long as the account is in credit. However, First Direct customers will now be charged for this type of service if they deposit less than £1,500 a month in their account
One reason UK banks have historically been able to offer these services free is that they pay very low rates of interest on money held in current accounts. The bank base rate will be higher so the profit can help cover the cost of running current accounts. As there is very little to choose between accounts at high street banks, many of us are loyal customers and stay with the same bank for a long period. This means we may well buy other services from them. Also, if you go into the red without prior agreement with your bank, then you are likely to face high interest charges on the overdraft.
However, it is becoming increasingly difficult for one area of a bank's business to finance another, as regulations are put in place to ensure all customers are treated fairly. This could mean that in the future high street banks will offer a range of different current accounts. Consumers will have to choose and pay according to the features they require.
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