Is it time to end ‘free’ banking?

Former_MSE_Debs

Poll started 21 Aug 2012

We’ve long said ‘free’ banking’s a myth. In reality, it’s ‘fees-free’ for those in credit. The price is no in-credit interest, high overdraft interest and hefty bank charges.

Some policy wonks are calling for the end of 'free' banking. They say banks would mis-sell less, as they wouldn’t need to flog as many other products to subsidise it.

So, a simple choice: would you change things?

Vote in this week's poll

Did you vote? Why did you pick that option? Are you surprised at the results so far? Have your say below. To see the results from last time, click this

[Deleted User]

I'd rather see a hybrid system. Instead of free banking, or monthly-fee-with-lower-charges banking, I would like to see a system where it starts off as free banking, but then if you incur one charge, you pay a monthly fee for that month, followed by realistic charges for what you've incurred.

gmtechnick

While I have voted 'Keep it free' I would be happy for a transparent fee based system, but have every suspicion that the banks would charge the fees and still mis-sell/push expensive add ons. They cant be trusted to do just banking.

philip2000

No such thing, banks take money from you if you go outside their terms and conditions irrespective if you pay monthly or not.

If they charge you monthly they will just have another mechanism to take more money of you.

Increase the competition amongst the banks

WestonDave

"We’ve long said ‘free’ banking’s a myth. In reality, it’s ‘fees-free’ for those in credit. The price is no in-credit interest, high overdraft interest and hefty bank charges"

Only partially true. If you keep your bank account in credit then high overdraft interest and hefty bank charges become irrelevant, and in times of low interest, the lack of interest on the minimal amount you should keep in a current account as opposed to siphoning off surplus to an interest bearing account is also insignificant. For people managing their finances actively and well, free banking can be genuinely free.

In my case I pay no charges, no overdraft interest because I don't use one, and because my current account is offset against my mortgage effectively earn 6.8% gross interest on money in current account - couple that with chart topping customer service from my bank and I'd have to be mad to want a change! Its not the system that is broke - its poor banks and poor financial management by customers that causes issues.

penrhyn

Another attack on those who manage their finances efficiently.
We are expected to prop up the !!!!less, the same is happening with the energy market, the decent offers are being withdrawn in the name of simplicity for those too dim to use a comparison site. Not forgetting that those of us who can't or won't invest in Ecobling panels are subsidising those who do through a so called green levy.

yuppysoul

WestonDave wrote: »

"We’ve long said ‘free’ banking’s a myth. In reality, it’s ‘fees-free’ for those in credit. The price is no in-credit interest, high overdraft interest and hefty bank charges"

Only partially true. If you keep your bank account in credit then high overdraft interest and hefty bank charges become irrelevant, and in times of low interest, the lack of interest on the minimal amount you should keep in a current account as opposed to siphoning off surplus to an interest bearing account is also insignificant. For people managing their finances actively and well, free banking can be genuinely free.

In my case I pay no charges, no overdraft interest because I don't use one, and because my current account is offset against my mortgage effectively earn 6.8% gross interest on money in current account - couple that with chart topping customer service from my bank and I'd have to be mad to want a change! Its not the system that is broke - its poor banks and poor financial management by customers that causes issues.

Exactly. I find it bizarre that this argument is put forward. I don't pay anything ever to use my bank account. That's free! Just because if I go outside the terms and conditions I can be charged doesn't make it not free.

When go through customs I can get 200 cigarettes without paying duty on them. If I don't declare them and I have more, I have to pay on the whole lot (including the 200).

This doesn't mean 200 cigarettes are no longer duty free. It means I broke the rules.

torbrex

I have had the same current account for over 30 years, I have never been overdrawn, never had to pay any charges and have always had my wages paid directly into the account.
In all this time, the bank has never offered me any kind of incentive to keep using the account other than the minimum interest that usually comes with such an account.

If they were to turn round tomorrow and start to charge me for the privilege of continuing to use the same account, I think you can all guess what my reaction would be.

MSE_Martin

What I find bizarre is the argument that 'end free banking and banks won't flog or cross sell inappropropriate products any more as they won't need to'.

Since when have banks turned down the opportunity to push profitability because "we needn't make more money." I find the logic very difficult to comprehend.

vreemt

The question & answers on facebook are a slightly different discussion to what has been going on here. Transparency is important and still allows for 'free' banking - make it clear that you don't pay for a basic account because your bank is using the interest they would normally pay you themselves to cover any potential costs, accounts with more in credit should not pay either and get interest, an option to go overdrawn without ridiculous fees should cost a small monthly fee in addition to interest on the amount overdrawn etc
I find it shocking to pay for the simple 'we have rejected a payment because of insufficient funds' although if it were possible to have a solid no overdraft (e.g. the account cannot go overdrawn so I will not incur charges/fees for that -ever-) I *might* consider paying for that (but again, I still think no overdraft is the bank not having to provide a service, so why should I pay for this??)
On a slightly different note, my bank has recently done lotteries and has an ongoing campaign of 'pay more than x in and gain benefit y' which I find ridiculous, if I wanted to participate in a lottery, I'd buy a ticket, why is my money being used to fund this?? benefits should be expressed in interest paid on the money in the account, or services (financial workshops maybe?)
my student account had (because of specific amounts being paid in on a regular basis) a free overdraft (no charges just 2-3% interest), a free credit card for a year (with automatic monthly direct debit), yearly interest on money in credit and no monthly costs for the debit card etc, which I found very good. I've now settled for a 'free' account, but am missing the interest I used to get (although I have set up a savings account for that, the rates are ridiculous). Mostly, I find the system archaic and confusing, with information from most banks misleading and convoluted (3 different leaflets to see what charges apply to which account etc.).

dtsazza

I wonder whether we'd see different answers based on "would you prefer..." and "do you think it's right..." questions.

For my own part, I vastly prefer the current system, because the cross-subsidies work in my favour - I would definitely be worse off with a charge-for-use system. But such a system could not be said to be unfair, and may well be in the banks' interest (as a more accurate reflection of their costs).

Still, it is hard to express a definitive position without any details of the putative transparent charges system. If the system reflected the bank's costs plus a profit margin, it would be interesting to see where the real costs were, and if that lead people to change their behaviour. I suspect the main costly areas would actually be talking to bank employees (at counters, over the phone or in person) which the bank is unlikely to charge at actual cost...