Why Is Free Banking Ending?

Savings and ISAs

Updated on 16 December 2008 | 0 Comments

It seems inevitable that free banking will end. Now we just need to establish why. Here are three possible reasons.

Many banks have started to promote paid-for accounts, which offer such things as various insurance covers, and discounts at retailers and hotels. The Fool doesn't think much of their poor quality insurance and inferior discounts! But one day soon we could all be paying for our accounts, with or without the extras.

Opinion is split as to what reason the banks have to make this major change.

The banks' reason

HSBC is already talking about the possibility of introducing current account fees. It appears that the reason it's using is that bad debts are on the rise. This surprises me, as any well run bank will have factored in the cost of increasing bad debts during worsening economic environments.

The conspiracy theorists' reason

Fool writer David Kuo blames me for the end of free banking, because I've been writing about how to claim back the banks' unlawful charges - see The Ultimate Guide To Reclaiming Bank And Card Charges. I don't quite have that much influence. (Not just yet anyway. Ha!) But there are other people promoting the cause too. Still, we're having a negligible impact; yes, millions have been reclaimed, but a great deal more hasn't been.

The logical reason

You may infer from the title I've given this reason that I have a bias towards it? Well, you're right.

What the banks are concerned about is the growing resentment towards unlawful charges, and the knock on effects of the Office of Fair Trading's decision on late payment charges for credit cards. (See Banks Back Down On Rip-Off Fines! for more.) This may be just one charge, but there are hundreds more hidden in the small print of various financial products. If banks are forced to reduce or end any more of their charges, it will probably have a domino effect on the other ones.

> You can pay less to your bank now, by switching to an account with a cheaper overdraft. Compare current accounts through The Fool.

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