Free banking in the UK 'could end in two years'

Free banking in the UK could disappear within two years if banks are forced to lower charges on unauthorised credit, market analysts today warned.

Financial research company Defaqto said it was likely customers will soon have to pay a monthly fee for a current account or face “pay as you go” charges.

Pressure from customers over high fees levied on items such as overdrafts and bounced payments and an investigation by the Office of Fair Trading (OFT) could see banks backed into a position of lowering the amount they charge.

Last year financial institutions were told to cap credit card penalty fees to £12 (€17.80).

But rather than take a hit to their profits, financial institutions could turn to other ways of recouping any financial loss they would incur as a result of capped charges.

As such, consumers could be made to stump up monthly fees or be charged depending on how much the account is used and what it is used for, Defaqto said.

First Direct became the first bank to charge customers for current account services, bringing in a £10 (€14.80) monthly fee on February 1.

Earlier this week, Graham Beale, the incoming boss at Nationwide said that he believed charging for current accounts could be a “fairer proposition” than free banking.

Such developments has added credence to the belief that the UK’s position as a free banking nation could soon be coming to an end.

David Black, head of banking at Defaqto, said: “I will be very surprised if free banking is universally available in two years time.

“Exceptions such as basic bank accounts for the less well-off will remain but the range of services on those accounts will not be suitable for most customers.

“The first major provider to introduce charges for all customers is going to take a lot of flak but it is likely that the majority of the main providers will then follow the lead.

“I would then expect to see a significant increase in account switching as well as many people closing their secondary accounts.”