Beat the current account 'con'

Charging for accounts would make things clearer, say experts

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Banks are misleading customers by offering 'free' current accounts that are nothing of the sort, experts warn.

Around three-quarters of adults in the UK have a so-called 'free-if-in-credit' account, with no monthly fee. However, this doesn't mean they cost nothing, with often-hefty charges for everything from going overdrawn to making purchases abroad.

There are also fees for Chaps, Swift, Target and Sepa payments.

And by allowing the bank to keep the interest on their cash, customers are often missing out: they'd be better keeping a minimum amount in the account at all times, putting the rest in a savings account.

Indeed, according to the Competition and Markets Authority, banks are making an average profit of £177 a year from each current account customer.

John Ashton, professor of banking at Bangor University Business School, tells the BBC that it tends to be the poorest and richest that miss out the most.

Those on low incomes are most likely to incur overdraft costs, while the better-off are more likely to be missing out on interest payments that they could have earned elsewhere.

"Over the long-term [free-if-in-credit] has not been a cheap way of getting banking services," he says. "As a marketing ploy, it is brilliant."

Consumer website Fairer Finance points out that FCA rules require banks' customer communications to be 'clear, fair and not misleading'.

"Some banks charge fees by the day for using an overdraft, while some charge fees by the month. Others charge annualised interest rates. Some have buffers, so that you can bust your overdraft limit without getting hit with hefty fees. Some don't," says managing director James Daley.

"This has created a market where it's increasingly difficult for customers to compare one account with another. Furthermore, the lack of consistency in the way banks charge means that it's not difficult to draw the wrong conclusions if you're trying to shop around for an account."

The CMA is currently investigating the industry, but has already ruled out banning free-if-in-credit banking - a move that's been criticised by MPs.

"What troubles me about this free-in-credit model is it requires banks to cross-subsidise from other areas," Conservative MP Mark Garnier told a Treasury select committee hearing.

Andrew Tyrie, who chairs the committee, has gone even further, describing the accounts as a 'con trick'.

"It seems reasonable that millions of customers should be allowed to know how much they are being charged for having a bank account," he said.

However, with only 2% of customers switching banks last year, the CMA's main aim is to increase competition in the sector - and it doesn't believe that the lack of clarity over free-in-credit accounts is to blame. It's set to release its final report in May.

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