Free Banking Might Be Around For Years

First it was HSBC and now it's Abbey that has changed its charging structure. One Fool forecasts the future of banking, and predicts temporary relief for supporters of free banking.

"I'm very disappointed in them."
"Why, are you an Abbey customer?" I replied.
"No, I just always liked their logo. That's why I've never bought products from Barclays or Lloyds. I don't like their logos."

I was dumbfounded for a few seconds. This was Kat, The Motley Fool's office manager talking, wasn't it? We don't usually recommend that people choose a bank or other product based on its logos.

Kat was disappointed about some recent changes to Abbey's terms and conditions. A large part of the changes is an attempt to strengthen the plausibility of Abbey's argument that its large unlawful charges are actually lawful charges for a service. Mostly this involves a lot of extra waffle, plus some name changes (e.g. when you exceed your agreed overdraft limit the bank now calls this using Abbey's 'Instant Overdraft').

To confuse you, and in an unsubtle attempt to justify its charges, it has changed its fee structure to a more complicated tier system, but it's still vastly over-priced. The cheapest charge of £5 is still, I estimate, at least twice as high as it should be. Here's a complete list:

Abbey's penalties for going over your agreed overdraft

Some points for Abbey customers to remember:

• It's the size of the transaction that dictates the fee, not the amount that you go over your overdraft limit.
• You're charged for each transaction that takes you over, or further over, your agreed overdraft limit.
• In addition to the above, you're charged £25 for each month you're over your agreed overdraft limit (up from £20) and 28.7% APR interest.
• So, if you have a £30 transaction that takes you over your arranged overdraft, and then you have a further £30 transaction, you'll be charged £95 (£35 + £35 + £25) in the first month, and £25 per month (plus interest) thereafter till you get back within your limit.

Perhaps this is good news for Fools who prefer to keep free banking. If Abbey is digging in to defend its penalty charges, then charges for everyone is probably some way off. It makes sense too; because of the Office of Fair Trading's super-claim, the banks might have up to 5 years before they need to make any serious changes.

Over that time I expect we'll still see some changes, as banks might start prepping people for charges with creeping changes.

I have mixed views about this. Hopefully it'll mean that their charges are spread out more fairly, which, to me, is the best bit. I estimate that if bank charges were split evenly between all current account customers it'd cost us each £112.50 per year at most, not £300 as has recently been speculated.

On the other hand, banks have infinite ways to charge us, so it's going to get much harder to compare current accounts. We'll find it harder to work out which account is best for us, as things get much more complicated.

Banks love complicated products. People don't understand what they're being charged, so it gives banks a chance to increase their profits. To that end, we'll probably see average annual charges rise to £120 or more.

"You do read our articles, don't you Kat?" I asked.
"We write articles?"

> Compare current accounts whilst they're still nice and simple.
> Current Accounts Crisis