Most UK consumers are falling for a giant “con-trick” by banking with free current accounts, experts warned.
Such accounts are “little more than a marketing ploy” and actually cost their users in the long-run, a damning report by the BBC found.
The situation has apparently become so bad that consumer groups are calling for all banks to be systematically fined for exploiting small-print and technicalities with free accounts to make more money.
Not mincing his words, Andrew Tyrie, the leader of the Treasury select committee of MPs, said that the idea of a free account was “not just misleading, it is a con-trick.” He concluded that customers needed a better idea of what they were really paying, what they should expect from the service and that ultimately “there is no such thing as free banking.”
The Competition and Markets Authority (CMA) says there are 68 million current accounts in the UK, and that 97% of British adults hold one. These free accounts may have no annual charges, but they also offer next to no interest. On top of this, British bank customers are a lazy bunch — less than 2% of customers switched accounts in 2015.
While the CMA knows how much average revenue a bank makes from a free account, it actually has no idea how much a free account costs the average customer. Analysts are worried this kind of oversight is symptomatic of a lack of competition in the industry — a concern that is upheld by how infrequently customers bother to switch accounts.
So how are these costs incurred, and why do so many of us not recognise them? James Delay, managing director of Fairer Finance, said the problem lay in wildly varying rules from bank to bank: “every bank has a different way of charging for overdrafts. Some have daily fees, some charge interest rates, some have buffers — and so it goes on.” Indeed, on many statements it’s not even obvious that the customer has incurred an overdraft charge, as it may only kick in above a certain limit.
Deliberately confusing jargon is also a major issue. “Clearing House Automated Payment Systems”, “load fees”, “SEPA transfers” are just some of the ways you can be charged money without even knowing what the charge means. Switching banks is also complicated, as direct debits have to be individually altered.
Rachel Springall, of Moneyfacts, told the BBC in a follow-up article that customers should take the plunge and switch to an account which actually provides a service they want, making sure “it covers all their financial requirements. This is particularly important if they want an overdraft to cover any unexpected outgoings.”
There are also a number of accounts which award cashback on credits of over £500 ($704), and if a customer doesn’t expect to go into overdraft they could save an average of £70 ($99) a year. There are also new services which also promise to make switching accounts simpler, diverting all ingoing and outgoing payments to your account.
Ultimately, free bank account customers have to want to find something better enough to actually do it.