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Is free banking a myth?

Paloma Kubiak
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Paloma Kubiak

The majority of day-to-day current account customers will end up paying fees to use their banking facility, research reveals.

Nine in 10 current accounts charge fees, whether it’s an account management fee or for using an overdraft, according to data site Moneyfacts’ research.

While people’s biggest concern may be the overall cost of their account, Moneyfacts said some consumers may want to re-think how they are searching for a free bank account.

This is because those who already pay a regular management fee will be shelling out around £147 every year on average, but only eight of these account options pay credit interest on a £1,000 balance.

Despite already charging a management fee, around 77% charge a usage fee for arranged overdrafts and 60% will charge for breaching an unarranged limit.

Customers who don’t pay a regular management fee aren’t necessarily better off. They may find themselves paying excessive overdraft charges when they dip into the red.

More than half of current accounts without a regular fee (58%) charge an authorised overdraft usage fee and 66% will charge an unauthorised usage fee. And only seven of these deals pay credit interest.


Rachel Springall, finance expert at Moneyfacts, said consumers should question whether they can acquire a ‘free’ bank account these days, as free banking is becoming a bit of a myth.

“The reason for this is that most current accounts charge fees for using their services, acquiring benefits, or when you look to borrow. The way providers charge customers for going overdrawn has been leaning towards usage fees rather than interest, which in most cases is much more expensive. 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.”

Springall said there are now only a select number of providers (M&S Bank, Metro Bank, Nationwide Building Society, Post Office Money and Tesco Bank) that offer an account without management or overdraft usage fees. Instead, they charge interest for their overdrafts, which can be much more cost-effective.

She added: “As it stands, a good current account deal should offer customers all the traditional basics, but also give them the opportunity to be rewarded for their loyalty. In addition, 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.”