True cost of 'free' current accounts revealed

Many of us still believe our current account is ‘free’ but new research shows that 90% of current accounts charge some kind of fee.

Many people cling to the idea that because they don’t pay a monthly fee for their current account it is free.

But new research from Moneyfacts shows that banks and building societies levy fees of some kind on nine in ten of all current accounts.

Hidden fees

When comparing the cost of current accounts, a lot of people forget to consider the fees levied on overdrafts, a lucrative area for banks and building societies.

To make matters worse the research found that even when you do pay an upfront fee for your account, which on average amounts to £147 a year, you may still be hit with extra fees if you use your overdraft.

Find a cheaper current account

The true cost of banking

There are 80 standard current accounts on the market at the moment, of which 33 are advertised as fee-free and 47 attract a monthly management fee.

Of those accounts that charge upfront management fees, 77% still charge extra for arranged overdrafts and 60% charge for unauthorised overdrafts.

Surprisingly, there are fewer authorised overdraft usage fees on accounts without a management fee. Of the accounts without management fees 58% charge for authorised overdrafts and 66% charge for unauthorised borrowing.

The research also found that there are only 15 out of 80 current accounts that pay interest on balances and that paying for a bank account doesn’t necessarily mean you’ll be rewarded with a better interest rate, with just eight offering this bonus.

“If you’re paying a regular account management fee to the tune of £147 per year on average, you only have eight options that allow you to earn any interest in return,” says the Moneyfacts report.

	Number of accounts paying interest at £1k	Average annual account fee	Number of accounts charging an authorised overdraft usage fee	Number of accounts charging an unauthorised overdraft fee	Total account options
Current accounts with an account fee	8	£147.43	36	28	47
Current accounts without an account fee	7	n/a	19	22	33
All accounts	15	£86.62	55	50	80*

Source: Moneyfacts.co.uk

*Figures include standard current accounts in GB (excluding basic, private, student, graduate and youth accounts).

“The way providers charge customers for going overdrawn has been leaning towards usage fees rather than interest, which in most cases is more expensive,” says Rachel Springall from Moneyfacts.

“Daily usage fees can be excessive and a nasty surprise as time passes, and what’s worse, most accounts now penalise you for dipping into an arranged limit.”

More transparent deals

If you are looking for more transparent banking there are very few providers who don’t charge management or overdraft fees. They are: M&S Bank, Metro Bank. Nationwide Building Society, Post Office Money and Tesco Bank.

These providers charge interest on overdrafts instead of usage fees, “but that tends to be a much more manageable way of dipping into the red compared with usage fee options,” says Moneyfacts.

For a current account to be considered good, “the tariff to borrow should be fair and providers should at least attempt to assist customers who slip further into the red on a frequent basis,” says Springall.

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