21st March 2016
A greater number of day-to-day current account customers are now paying fees to use their account according to research from Moneyfacts.co.uk.
Traditionally, customers would pay fees to get extra add-ons, such as travel insurance, but not all fee-charging accounts continue to reward their customers in this way.
Those who pay a regular management fee will be shelling out around £131 a year on average, but out of these accounts only a small fraction, at 20%, pay credit interest.
In addition, 76% also charge a usage fee for authorised overdrafts at £126 on average per year and 75% charge an average yearly fee of £873 to use an unauthorised overdraft.
Contrary to popular belief, current account customers who don’t pay a regular management fee aren’t necessarily better off: in fact, consumers who don’t pay such a fee may find themselves paying excessive overdraft charges when they dip into the red. More than half of current accounts without a regular fee, at 64%, charge an authorised overdraft usage fee of an average of £163 a year.
Worse still, a staggering 79% of these accounts charge an unauthorised usage fee, which costs £918 a year on average.
Disappointingly, only 21% of these deals pay consumers credit interest.
This means that 92% of all current accounts for day-to-day customers will charge an account fee and/or an overdraft usage fee.
|Authorised usage fee deals||Authorised usage fee pa avg||Unauthorised usage fee deals||Unauthorised usage fee pa avg||Pay credit interest||Total account options|
|Current accounts with an account fee||39||£126||38||£873||10||51|
|Current accounts with no account fee||21||£163||26||£918||7||33|
Rachel Springall, finance expert at Moneyfacts.co.uk, asserted that it is clear that the concept of ‘free banking’ has become a bit of a myth for the majority of standard current account customers.
She said: “The complex nature of current accounts makes it hard to choose the right option upfront, which means that when someone does borrow, the fees are likely to give them a nasty surprise.
“Only a handful of providers – M&S Bank, Metro Bank, Nationwide Building Society, Post Office Money and Tesco Bank – have accounts without management or overdraft usage fees. Instead, they charge interest for their overdrafts, which can be much more cost-effective.”
The Competition and Markets Authority (CMA) is due to publish its findings and recommendations on the banking industry towards the end of this year, and it’s hoped that it will cover the issue of unfair charges and the complexity of comparing deals.
Springall added: “In the meantime, consumers would be wise to weigh up any upfront rewards on current accounts and ensure that they pick an account that provides for both their short and long-term needs.”