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Free current accounts in decline
By Elaine Moore
Published: April 28 2011 18:21 | Last updated: April 28 2011 18:21
Current accounts charging customers a fee now outnumber those that do not, as banks attempt to manoeuvre customers away from a free banking model.
Under pressure to raise revenue from new sources, high street banks have been cutting the number of free in-credit bank accounts available.
EDITOR’S CHOICE
Competition tops bank commission agenda - Apr-02
Report rejects reversing Lloyds-HBOS deal - Apr-02
In the red comes in many hues - Mar-11
Santander launches fee free bank account - Nov-19
Banks plan to end free current accounts - Oct-24
Asset sales open door to competitors - Nov-04
There are now 58 free accounts open to customers, down from 65 in 2009.
Meanwhile, providers have increased the range of packaged accounts that levy a monthly fee in return for additional benefits such as free travel insurance.
The prices charged are also rising. In 2006, the average packaged account cost just over £10 per month. Now customers pay more than £15 on average – and a range of providers, including Barclays, NatWest and RBS, charge even more.
Barclays Premier Life Account charges £25 a month but offers fewer benefits than the RBS Royalties Gold, which charges £11.95.
Barclays said the quality of benefits in its Premier account was higher than at other similar accounts. Also, customers who earn more than £100,000 or have more than £50,000 saved pay just £17.50 a month.
Research from Defaqto, the financial research company, has found that the benefits within packaged accounts have changed over the past five years. As well as travel and motor insurance, which are now found in most packaged accounts, new incentives include discounts on mortgages, entertainment ticket savings and commission-free foreign exchange.
On average, the number of benefits included in a packaged account was between six and 10 when the deals were first introduced. Now customers are typically presented with an array of more than 20 extras.
NatWest’s Advantage Private account offers a 25 per cent price reduction for certain theatre, dance and opera performances. Lloyds TSB’s Premier Current Account, which costs £25 per month, offers identity theft monitoring and air miles.
But not all the benefits can be used by all customers. Travel insurance, for example, does not always include worldwide travel or cover injuries or damage incurred through extreme sports such as skiing or diving. Certain policies will only cover the account holder, not a family, and some cap the age of the individual they will cover.
Although the Financial Services Authority (FSA) has questioned the deals provided within packaged accounts, David Black, Defaqto banking analyst, said certain incentives, such as travel insurance for older people who have difficulty getting cover, were attractive. “The relevance will depend upon your circumstances and needs,” he said.
The FSA estimates that more than 14m customers pay a monthly fee for their current account and that these fees now provide a significant source of income for banks.
Analysts suggest that the withdrawal of free banking will gather pace, especially since banks have seen other sources of revenue dry up, with recent rulings by the FSA against unauthorised overdraft charges, late credit card repayments and payment protection insurance (PPI).
Since losing the High Court case against PPI mis-sales this month, which could cost them £4.5bn in compensation pay-outs, banks are forecast to encourage even more customers into fee-paying current accounts.
But even free banking, introduced by Midland Bank in the 1980s, is not, in fact, free. Customers with a positive bank balance do not pay anything to withdraw their money, write cheques or use a debit card but most forgo any interest on the money they hold. In addition, the customers who pay hefty fees for overdrafts and late payments cross-subsidise the other accounts.
In 2008, the Office of Fair Trading estimated that the average yearly revenue made by banks was £152 per current account as a result of interest, fees and charges.
Peter Vicary-Smith, chief executive of Which?, said the profits made by banks in cross-selling products to their current account customers more than covered the cost of “free” banking.
FT is the source.
By Elaine Moore
Published: April 28 2011 18:21 | Last updated: April 28 2011 18:21
Current accounts charging customers a fee now outnumber those that do not, as banks attempt to manoeuvre customers away from a free banking model.
Under pressure to raise revenue from new sources, high street banks have been cutting the number of free in-credit bank accounts available.
EDITOR’S CHOICE
Competition tops bank commission agenda - Apr-02
Report rejects reversing Lloyds-HBOS deal - Apr-02
In the red comes in many hues - Mar-11
Santander launches fee free bank account - Nov-19
Banks plan to end free current accounts - Oct-24
Asset sales open door to competitors - Nov-04
There are now 58 free accounts open to customers, down from 65 in 2009.
Meanwhile, providers have increased the range of packaged accounts that levy a monthly fee in return for additional benefits such as free travel insurance.
The prices charged are also rising. In 2006, the average packaged account cost just over £10 per month. Now customers pay more than £15 on average – and a range of providers, including Barclays, NatWest and RBS, charge even more.
Barclays Premier Life Account charges £25 a month but offers fewer benefits than the RBS Royalties Gold, which charges £11.95.
Barclays said the quality of benefits in its Premier account was higher than at other similar accounts. Also, customers who earn more than £100,000 or have more than £50,000 saved pay just £17.50 a month.
Research from Defaqto, the financial research company, has found that the benefits within packaged accounts have changed over the past five years. As well as travel and motor insurance, which are now found in most packaged accounts, new incentives include discounts on mortgages, entertainment ticket savings and commission-free foreign exchange.
On average, the number of benefits included in a packaged account was between six and 10 when the deals were first introduced. Now customers are typically presented with an array of more than 20 extras.
NatWest’s Advantage Private account offers a 25 per cent price reduction for certain theatre, dance and opera performances. Lloyds TSB’s Premier Current Account, which costs £25 per month, offers identity theft monitoring and air miles.
But not all the benefits can be used by all customers. Travel insurance, for example, does not always include worldwide travel or cover injuries or damage incurred through extreme sports such as skiing or diving. Certain policies will only cover the account holder, not a family, and some cap the age of the individual they will cover.
Although the Financial Services Authority (FSA) has questioned the deals provided within packaged accounts, David Black, Defaqto banking analyst, said certain incentives, such as travel insurance for older people who have difficulty getting cover, were attractive. “The relevance will depend upon your circumstances and needs,” he said.
The FSA estimates that more than 14m customers pay a monthly fee for their current account and that these fees now provide a significant source of income for banks.
Analysts suggest that the withdrawal of free banking will gather pace, especially since banks have seen other sources of revenue dry up, with recent rulings by the FSA against unauthorised overdraft charges, late credit card repayments and payment protection insurance (PPI).
Since losing the High Court case against PPI mis-sales this month, which could cost them £4.5bn in compensation pay-outs, banks are forecast to encourage even more customers into fee-paying current accounts.
But even free banking, introduced by Midland Bank in the 1980s, is not, in fact, free. Customers with a positive bank balance do not pay anything to withdraw their money, write cheques or use a debit card but most forgo any interest on the money they hold. In addition, the customers who pay hefty fees for overdrafts and late payments cross-subsidise the other accounts.
In 2008, the Office of Fair Trading estimated that the average yearly revenue made by banks was £152 per current account as a result of interest, fees and charges.
Peter Vicary-Smith, chief executive of Which?, said the profits made by banks in cross-selling products to their current account customers more than covered the cost of “free” banking.
FT is the source.
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