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Bank customers wedded to free current accounts despite hidden fees

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
02/02/2015

Consumers remain devoted to using ‘free’ current accounts despite a majority being aware that they incur ‘hidden charges’, according to a study released by PwC today.

The findings reveal that while 62 per cent of bank customers are not keen to pay for a current account, 66 per cent also understand they are incurring a number of indirect charges by holding one. Roughly half, however, would consider switching to a new bank if a transparent, upfront fee was introduced.

Other areas of the study indicate widespread consumer cynicism about high street banks, with fewer than one in three respondents believing their bank to be trustworthy.

The PwC report ‘There’s No Such Thing As A Free Lunch’, argues that ‘free’ current accounts are never truly free, as direct burdens such as overdraft charges and penalty fees, and uncompetitive or non-existent rates of interest, end up costing customers just as much, if not more. The report goes on to argue that the notion of free current accounts is no longer tenable, and that the industry must adopt a more transparent and open pricing structure.

The report, however, found that 17 per cent were willing to pay less than £5 a month for their current account, 10 per cent would pay between £5 and £10 a month and 5 per cent would pay £10 to £20 a month. A further 1 per cent would pay between £20 and £40 a month.

If people were obliged to pay upfront for their current account, the services they would most like in return are cashback on household bill payments, free overdraft facilities and a higher rate of fixed interest.

“The irony is that most customers understand the unspoken bargain operating here and prefer it to paying an up-front fee,” Steve Davies, retail banking leader at PwC, said. “A more sustainable approach is that customers are asked to pay a fair price in return for reasonable services, which would reduce the risk of banks seeking to recover these costs by selling other products and services that the customer may not want or need.”

Davies warned, however, against the removal of all superficially free banking products, saying a bank that introduced charges across its stable stood a high risk of losing customers. He did, however, foresee the ‘gradual decline of the free-if-in-credit bank account model’, and the introduction of tiered pricing, with only ‘very basic free product’ ultimately retained.