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Should free banking be abolished?

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 31 May 2012  |  Comments 28 comments

A Bank of England official has suggested that free banking should be abolished. Does that really make sense?

The idea that banks should be forced to charge for a service they currently offer for free might seem odd.

But there is an argument for the idea. Because the banks don't charge a fee for the majority of current accounts, they're arguably forced to generate revenue via other routes. So we've seen very high penalty fees for late payments and such like as well as very high interest rates and charges for unauthorised overdrafts.

There's also the fact that most free current accounts pay very poor interest rates for any credit balances.

So the Bank of England official, Andrew Bailey, has suggested that an end to free banking could create a market where current account charges are transparent and fair, and no one suffers unduly.

Of course, the opposite view is that free current accounts are a great boon for many people. If you manage your current account carefully, there's no reason why you should pay any charges for your current account at all.

The two golden rules for free banking are simple:

- keep your account in the black at all times

- make sure you don't leave large deposits sitting in your current account earning paltry levels of interest.

What do you think? Tell us in the comments box below.

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Comments (28)

  • msknight
    Love rating 31
    msknight said

    They get more money from us than ever before. With credit cards in widespread use instead of cash, and other electronic systems like pay-by-bonk coming in, they snaffle a percentage of every transaction which, I believe, is on top of the charges that a business has to pay to run its own bank account anyway; result is more expensive goods for us all, to the tune of 1.5% more expensive, according to the fee quotes by other services, eg. paying for council services by credit instead of debit card.

    With Internet based shopping services, especially abroad, only taking credit cards and not UK debit cards (unless you're lucky enough to go through something like the Visa system) then you're out of options (unless you give a service like PayPal direct access to your bank account)

    If they are to charge for current accounts then they should release these other revenue methods. Either that, or the government needs to step in with some form of better, national banking, rather than what we nave at the moment.

    They've also been trying to kill the personal cheque in order to save them money. Customer service can go to hell in a hand basket as far as they are concerned.

    The way things are looking now, I'm looking in to services other than banks to hold my money. Occupy protest, anyone? Or should we all go back to cash?

    Report on 02 June 2012  |  Love thisLove  2 loves
  • JohnW
    Love rating 26
    JohnW said

    Banking is not free, it just depends on how you want them to collect the charges. At the moment they earn interest on the money you have in your account, they may give you a little bit of that back but keep the rest. In exchange you do not pay for some services. The retailers pick up the cost of the debit card transactions at the moment, how long before not only they pay but you pay for each transaction on your account including debit card ones.

    Whilst at first glance it may make sense to go to a system where you pay for transactions thus those that use thier accounts more would pay more. It is an almost certainly that the banks will see this as a way to make more money, so you end up paying charges but get no more interest on your account and still paying the same charges for other items and high rates for borrowing. If you could rely on the banks to be fair, then maybe a system would work, but banks are not fair they are only there to make profit.

    I have no problem with any company making profit, but it is the way they go about it that I do not like.

    Report on 02 June 2012  |  Love thisLove  2 loves
  • pkdoris68
    Love rating 1
    pkdoris68 said

    Let me get this right....because the majority of people do not go in excess of their accounts, we should all pay to use banking facilties....is that correct?

    As an occasional user of unauthorised overdraft facilites. When you screw up...pay up!! For the majority to subsidise the profligacy of the minority does not seem entirely fair.

    And also...this is just so not going to happen, as which Bank is going to be so brave and take this first step solo?

    Report on 02 June 2012  |  Love thisLove  1 love
  • T5P8
    Love rating 33
    T5P8 said

    This almost makes me laugh.

    All your fancy talk doesn't hide the fact that the bank cartel just want more of our money.

    We bail them out of their self inflicted catastophe and this is how they thank us.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • Redsocks
    Love rating 0
    Redsocks said

    If we start paying for ordinary run of the mill bank accounts you can bet the only people to benefit will be the high level bank fat cats. Can't see any bank still with accounts that pay interest, putting that interest up. Just hope like pkdoris68 said, no bank will brave enough to be the first.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • smithdom
    Love rating 34
    smithdom said

    I'm all for greater transparency in bank charges, and even as someone who currently never incurs charges I would be willing to pay a reasonable charge for a banking service if it was worth paying for. The trouble is our payments system at the moment is barely fit for purpose and certainly not worth paying for. Now, if they would get together and invest in something better... http://www.smithdom.force9.co.uk/ep/EffectivePayments.pdf

    Report on 02 June 2012  |  Love thisLove  0 loves
  • CuNNaXXa
    Love rating 362
    CuNNaXXa said

    There is no such thing as free banking. As I said in another LoveMoney article, we pay for our banking using covert fees.

    As you all know, most of our daily purchases are done using plastic (debit cards). We don't pay a fee to use these cards, but the retailer does. The retailer prices their stock to take into account these fees that they pay, so we are effectively paying these fees for the retailer.

    In fact, all fees paid by retailers, whether it is a local Spar shop or the Tescos superchain, are passed onto the consumer.

    So, banking is NOT free, and never has been.

    My complaint would be that if they introduced service charges, would the retailer fee be reduced so that consumer prices would drop, or would those existing fees remain at their current level?

    Surely charging a service charge would then be illegal, because if we are paying to spend a pound, and the retailer has to pay to receive the pound, then the banks are charging twice for the same transaction.

    Surely, this is just another form of taxation, because that charge would be subject to VAT, meaning the government get their hands on even more of OUR money.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • Mike10613
    Love rating 599
    Mike10613 said

    Perhaps we should also pay for many other 'free' things? Pay to vote, pay for a page on Facebook, pay to search using Google, Pay to drive down your own street, pay to park on all car parks, have tolls on all motorways, pay to view instead of a TV licence and advertising, pay for water by the drop, pay to bloody breathe.

    This suggestion came from someone at the Bank of England where they have a super computer forecasting what will happen to the economy. They tend to get it right every time don't they? Do we really want the stupid ones deciding how we spend our money?

    Report on 02 June 2012  |  Love thisLove  0 loves
  • Tog
    Love rating 6
    Tog said

    I don't make late payments, use an overdraft limit, or use any of those "other routes" this guy is talking about. Why on earth should I support the people who do through a charge that penalises me for being a good customer? Keep the individual charges for facilities used, that is far more understandable to me than paying for something when I am not using it.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • Diverhil
    Love rating 1
    Diverhil said

    Why should I, whose accounts are always in credit as I don't spend what I don't have, have to pay for those who do not?

    Report on 02 June 2012  |  Love thisLove  0 loves
  • Robjon100
    Love rating 5
    Robjon100 said

    I totally agree Mike10613, all is designed to extract money from the people time after time after time. An endless procession of devious decissions made behind closed doors without consultation.

    It is a pity that the main issue with Banks never seems to be resolved. There should be rules and regulations imposed so there is no repeat of previous Bank System Failure. Assurances that Bank Depositors/Investors money is 100% secure. In return for 100% guarantee I am sure people would be more than happy to pay reasonable Bank Charges.

    So Bank of England, instead of pandering to the poor Bankers, come up with a package that is commercially viable for Depositor/Investers in order to justify making charges.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • paperman
    Love rating 2
    paperman said

    If the banks want to be able to use my money to invest and make profits then they should realise that i am not goint to pay a fee for them to make even more money,

    if my bank introduces charges they will lose my business, simple as that.

    i do not go overdrawn, i do not draw cash on my credit card and i pay my credit card in full every month.

    people who do not follow the same rules are already paying for the banking through massive interest payments, these people either choose to work this way and accept the charges or are there by a bit of bad luck / oversight, they still have to pay the costs but will probably learn from their misake and not do it again.

    the banks make massive profits from mortgages and loans due to the high interest charges,

    to me there is no reason for banks to even try this, the first one to try will undoubtedly suffer as people will surely vote with their feet.

    Report on 02 June 2012  |  Love thisLove  2 loves
  • timcurtis
    Love rating 2
    timcurtis said

    For those that cannot remember the Banks used to take us all for a ride each being able to use a fog of charges for various account facilities and their uses. Then came the Giro Bank with its free account and detailed charges for the services we used. The other Banks had to sit up and take notice. We also had the opportunity to just use cash. Now thanks to the money laundering laws that quaint old fashion system is all but dead.

    Banks have our money on deposit so make their money from it by lending it to others. They also loan it back to us as mortgages and loans.

    So free basic accounts should remain for those in credit and prudent with their money.

    Report on 02 June 2012  |  Love thisLove  2 loves
  • DavidDale
    Love rating 10
    DavidDale said

    I do get angered by the PR spin doctors who describe so many services as "free". The NHS is not "free" for those of us who pay taxes, the motorways are not "free" for those who pay road tax and current accounts are not free as the bank takes the interest that is being generated by the deposits in those accounts as payment. A fee to use a current account would be a second charge on having one and, like your other respondents, I don't see why those of us who are responsible with our money should pay for those who are not. I would certainly take my business elsewhere.

    Report on 02 June 2012  |  Love thisLove  3 loves
  • anonyy
    Love rating 16
    anonyy said

    Heck now. What about low earners they will get even poorer.

    What about those on benefits, they most certainly can't afford it. They should keep it the same way it is now. Your own fault too don't understand over draught charges or credit card fees. Not the responsible people who know how to budget, and pay back what they owe, it is not for met in king to tell us to pay EVEN more than we already do and expect us to cope with it.

    Report on 02 June 2012  |  Love thisLove  1 love
  • dimercaprol
    Love rating 5
    dimercaprol said

    I agree with David Dale. I get no interest on my current account. there is always a pot of cash "for a rainy day" sitting in that account. The bank is earning interest itself on this money. Now they want to charge for the account too. This is after Barclays has posted profits of billions of pounds so dont be duped - they are not introducing charges because they cant afford to provide free current accounts. This is simply greed.

    Report on 02 June 2012  |  Love thisLove  1 love
  • Aitken B
    Love rating 109
    Aitken B said

    As has been alluded to, there is no such thing as free banking. Up front charges would, perhaps, make the charging more transparent but would it bring banking charges down? I seriously doubt it. I suspect, like the government's desire for road tolling on all roads, it would merely be yet anther route by which the greedy could separate us from our hard earned cash and even if the overall "separation" remained the same I suspect the well heeled would gain at the expense of the financially challenged.

    Banking should now be seen as merely another utility, a service without which modern life cannot operate. The problem is that many of those in carge of this "utility" are even less concerned about the plight of their hapless victims (customers) than are those controlling the traditional utilities of energy and water. Some might advocate a regulator, OFFBANK for example. Given the roaring success of the present OFF- - -s in protecting their industries from the ire (that's IRE not IRA) of their "customers", it is certainly true to say that a phrase containing "off" and "bank" does spring to mind.

    Better the rip-offs we know than a whole set of new ones we don't.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • TheWizardOfUzz
    Love rating 10
    TheWizardOfUzz said

    This is simple.

    Banking should be free for those of us who simply earn wages and spend it and keep and in credit balance.

    Banks should make a reasonable charge to those who do not stay in credit. Banks pay little enough interest and use our money to make money in the markets or by lending and earning interest.

    The greed of the banks to satisfy their share holders rather than their customers cannot be allowed to happen again. Ever!

    Report on 02 June 2012  |  Love thisLove  0 loves
  • JOHN MAXWELL
    Love rating 56
    JOHN MAXWELL said

    there is no such thing as free anything. everything is paid for somewhere by someone. banks are a business and the prime motivation for a business is to make a profit. there is cake called bank profit (unless your subsidised by the tax payer!) and how you slice the cake is irrelevant, the cake will still exist.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • Snotmee
    Love rating 8
    Snotmee said

    The Banks hold our money and pay us precious little or no interest on it. They are making enough profit from those of us who remain in credit. For those who do not stay in credit the banks are probably making even more profit.

    It would be nice if they would now start lending to help the economy move forward instead of dreaming up more schemes to rip us off more without taking any risk!

    Report on 02 June 2012  |  Love thisLove  1 love
  • culluding-fool
    Love rating 49
    culluding-fool said

    The only ATM in six miles of where I live charges £1.98 to draw out £10. Then the government takes 20% of that as soon as I spend it, so almost £12 to buy £8 of goods, and that's after income tax, so how much more do these moguls think they can drain out of us!?

    Report on 02 June 2012  |  Love thisLove  1 love
  • EastExpert
    Love rating 30
    EastExpert said

    The banks already take a lot of money for their "services". Much more than they're worth.

    1) To start with, my money sitting in bank accounts attract interest which is absorbed by the bank.

    2) The mortgage costs the bank less than they will charge me for having it.

    3) The loans cost the bank even less than they charge me for them.

    4) Credit cards (I always pay off in full, but for those who don't...)

    5) Overdrafts at extortionate rates - they're not worth it.

    6) Store cards charging 30% and more...

    Now, how dare the banks even talk about charging me for "in-credit banking"? They are already using my money to earn profits -- we all see how much they are earning. That is enough. Just enough.

    And for those of you who think the banks won't do it, because of the Mexican standoff -- the first who shoots gets the maximum damage? From what I remember, banks did introduce other unpopular measures before. Like start charging balance transfer fees. Like increasing them to 1%, 2% then nearly 3%. Like raising overdraft rates from single digits to sometimes 20%. Like raising credit card rates.

    How it all happens?

    Easy. The banking cartel takes the scapegoat. E.g. Barclays (often happens to be). Barclays start charging new fees. The disgruntled customers start thinking about jumping ships. Lovemoney and MoneyExpert and the rest of start issuing articles about it. Then the rest of the banks gladly catch up with the scapegoat, -- now they can 'cause they're not the first! -- making switching an utterly stupid business.

    The bank cartel says "Whoa!" and they laugh all the way to... themselves. The clients wonder where did this pain in the bankside (sorry, backside) come from. Job done!

    And this is how it always happens. So the Mexican standoff factor does NOT work.

    If they gonna start charging for in-credit banking, next to be will be charging for ATM withdrawals from other banks' ATMs. Like they do in Spain. I was there recently and the guy next after me in the queue to the ATM waited for me to complete even though there was no one at the next ATM. When asked him, he said, this is my bank and the other would charge me...

    While we will dutifully accept this daylight robbery, they will continue to squeeze the energy out of us, until there is none left. So may the advocates of Pay As You Breathe life please go somewhere else to live their very lovely Pay As You Breathe life.

    Report on 02 June 2012  |  Love thisLove  1 love
  • mosicle
    Love rating 19
    mosicle said

    No, so called free banking should NOT be abolished. We have no choice about having our money paid into the banks. The Banks main aim as far as I can see, is to weedle or cheat us out of as much money as they can without giving anything in return. I lost a lot of money through Lloyds Bank/ Scottish Widows NOT doing as they were instructed to do, they refused to take responsibility for their mistakes. When I was younger I asked Lloyds for assisstance and the guy on the other end of the phone sneered and left me near to tears.They are very eager to try to get you to invest with them if you have a fair bit of money in your account, and always say they will have a word with their Manager when you tell them you don't trust them and explain how they have behaved. BUT I have not once had a phone call from the Manager to see what could be doneto rectify past mistakes or how they could regain my trust. Banks make more than enough out of their clients, as seen by the obscene bonus culture that they insist on perpetuating, despite their dismal record as Bankers. SO FREE BANKING SHOULD STAY.,Afetr all costs/fees should be transparent anyway and not be hidden in their small print. THEY SHOULD BE BEING HONEST ALL THE TIME!!!!!!! That sort of talk by Andrew Bailey just confirms they are cheating their customers. If I had somewhere else to put my day to day money I would NOT use the Banks at all.

    Report on 02 June 2012  |  Love thisLove  1 love
  • marram
    Love rating 46
    marram said

    I said goodbye to all the accounts with 'frills' which end up costing money, I now have a Santander Current account, with a payment card, online banking, and no interest on credit balances. What exactly does that cost to run? I do all the work myself, even printing out my own statements! The payment card is totally automated, all done by a computer. I have never received anything other than junkmail from the bank and I have never even spoken to a human being employed by Santander. Even the occasional cheque is fed into a machine and my account is updated automatically. I'm a pensioner and now they think I should pay! ******* cheek!

    Report on 02 June 2012  |  Love thisLove  1 love
  • wallace47
    Love rating 4
    wallace47 said

    This reminds me of the early 80's when banks started to charge for credit cards. I was with TSB at the time, but changed to the Co-op as they didn't charge.

    Was not many months before the banks went back to NOT charging for credit cards.

    Likewise with "free banking", there will always be some (greedy) bank who will offer "free banking", as a means of attracting new customers once they all start charging.

    Banks are out to make money, and they don't care how sneakily they do it.

    Whoever heard of directors getting a FAT bonus when they have had to be bailed out ??? Exactly what happened with the RBS and others. MORAL.. don't worry if you fail, the taxpayers will bail us out AND give us fat Cat bonuses as well.

    Report on 02 June 2012  |  Love thisLove  0 loves
  • poppasmurf
    Love rating 31
    poppasmurf said

    Another ripoff.

    I already feel mugged by the banks.

    Ridiculous idea.

    Report on 03 June 2012  |  Love thisLove  2 loves
  • FireBlade
    Love rating 25
    FireBlade said

    I find it utterly incredible that this industry is constantly trying to find ways of fleecing people. Charging for credit cards...charging for some accounts...charging horrendously large fees for late payments etc.. It wasn't that long ago that they started charging us for using ATM's. The industry very nearly brought down the financial world, yet are recovering very well and awarding themselves healthy bonuses despite many folk losing everything.

    These people are shameless. Utterly shameless. And our politicians are pathetic for allowing them to carry on in this fashion.

    Report on 03 June 2012  |  Love thisLove  3 loves
  • GaryDean
    Love rating 56
    GaryDean said

    There is no such thing as free banking. We lend the bank our money & they make money. When they lend us money either via credit card or a fixed rate loan they charge us a high rate of interest. If the bank runs into trouble we lose our money while their execs still reward themselves unthinkably high wages & bonuses. We take that risk for the convenience it offers us. It is a mutually beneficial agreement.

    The suggestion that we should now pay them to borrow our money is mercenary. However it is not at all surprising as now with the credit rating system just about in full force, to operate without a bank account is nigh on impossible. These execs know that only too well & of course given the extreme lack of moral decency & ethics pervading that world we can only expect them to cash in.

    Wrong is still wrong no matter what fancy wording one uses to justify it just as right is still right. Right & wrong are absolutes that do not change with the fashion or the whims of those who wield far more power than they are able to control in their lust for self enrichment.

    Report on 25 July 2012  |  Love thisLove  0 loves

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