Tesco and Virgin call for ban on free current accounts
Challenger banks warn that free banking is holding back competition
Challenger banks Tesco and Virgin Money have called for all banks to start charging for their current accounts, in order to improve competition.
The Competition and Markets Authority (CMA) is currently investigating the bank account market and has invited submissions from the nation's banks on what needs to be done to improve the sector.
Tesco and Virgin Money, both relatively new names to the provision of bank accounts, made the case that free banking needs to go. Tesco argued that it is essentially a barrier to entry, as the bigger banks are able to cross-subsidise the free accounts, while Virgin pointed out that the lack of a fee is subsidised by vague overdraft charging, making it difficult for people to shop around and compare accounts.
In contrast, the bigger banks are in favour of maintaining the current free standard. Lloyds Banking Group told the CMA that it thought free accounts could encourage competition as customers can have multiple accounts open at once without incurring extra fees. This means that they can sample the level of service at different banks.
I don't want to pay
The CMA's investigation will take around 18 months, so nothing will change in the immediate future.
While there are plenty of accounts that do charge a fee already, some of the best accounts around won't cost you anything on a monthly basis (so long as you pay in enough each month). Let's take a closer look.
|
Provider and product name |
Interest rate (AER) |
Notes |
|
5% on balances up to £2,000 |
To earn interest, you must credit your account with £500 each month, register for internet banking, paperless statements and correspondence |
|
|
5% on balances up to £2,500 for the first 12 months |
You must pay in a minimum of £1,000 a month to benefit from interest. Comes with 12-month fee-free overdraft. |
|
|
Lloyds Bank Club Lloyds Current Account |
4% on balances between £4,000 and £5,000 |
Minimum of £1,500 must be paid in monthly to waive £5 monthly fee. To qualify for credit interest, you need to pay two different direct debits from your Club Lloyds current account each calendar month |
|
Tesco Bank Current Account |
3% on balances up to £3,000 |
Pay in £750 a month to waive £5 monthly fee |
|
2% on balances up to £3,000 |
No fee, but you must pay in a minimum of £1,000 a month |
|
|
Yorkshire Bank Current Account Direct |
2% on balances up to £3,000 |
No fee, but you must pay in a minimum of £1,000 a month |
|
0% |
No fee, but you must pay in a minimum of £750 a month. Comes with free European multi-trip travel insurance and three-month fee-free overdraft. |
|
| First Direct 1st Account | 0% |
£100 welcome bonus, plus another £100 if you decide to leave after a year. Award-winning customer service. Pay in £1,000 from an external source every month to waive £10 monthly fee. No fee for the first six months from account opening. |
|
Norwich and Peterborough BS Gold Classic |
0% |
No charges or handling fees when using abroad. Six-month fee-free £250 overdraft. Must pay in a minimum of £500 a month or hold a balance of £5,000 for the £5 monthly fee to be waived. |
|
M&S Bank Current Account |
0% |
£100 M&S gift card when you switch. |
Should you have to pay a fee for your bank account? Let us know your thoughts in the comments box below.
Compare current accounts with lovemoney.com
More on current accounts:
Santander launches new cashback service for 123 customers
Full-scale competition investigation into current account market
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