Myth of free banking: How nine in ten current accounts charge either a monthly fee or for using an overdraft

• The concept of free banking is a ‘myth’, a Moneyfacts investigation has found • Nine in ten current accounts charge fees, via a monthly fee, or using an overdraft • Those who pay regular management fee shell out £147 every year on average • The more exp

The concept of free banking is a ‘myth’, an investigation has found.

Nine in ten current accounts charge fees, either via a monthly fee, or for using an overdraft.

Eight in ten fee charging bank accounts also pay no interest to customers in credit, while penalising them for going into the red.

+Those who already pay regular management fee will be shelling out £147 every year on average, according to the analysis by Moneyfacts.

The more expensive accounts charge a monthly fee of around £20.

But 39 out of 47 of these accounts pay no interest to customers who have a positive balance in their account.

This means they make money from customers in the black as they lend the cash they receive from deposits to borrowers in the form of personal loans, credit cards and mortgages.

These fees are even levied on those customers who pay between £1 and £19 a month for their current account.

Halifax’s Ultimate Reward Current Account, which charges a monthly fee of £15, charges £1 a day for overdrafts of between £300.01 and £1999.99.

It does provide a series of perks, including travel insurance, mobile insurance and breakdown cover with the AA.

Rachel Springall, finance expert at moneyfacts.co.uk, which carried out the research, said: ‘It’s clear to see why consumers should question whether they can acquire a ‘free’ bank account these days, with free banking becoming a bit of a myth. ‘The reason for this is that most current accounts charge fees for using their services, acquiring benefits, or when you look to borrow.’

Many providers have moved from charging interest to flat fees, which in most cases is much more expensive.

Ms Springall said: ‘Daily usage fees can be excessive and a nasty surprise as time passes, and what’s worse, most accounts now penalise you for dipping into an arranged limit.’

There are now only a few providers - M&S Bank, Metro Bank, Nationwide Building Society, Post Office Money and Tesco Bank - that offer an account without management or overdraft usage fees.

Instead, they charge interest for their overdrafts, which can be much more cost-effective.

City watchdog the Financial Conduct Authority last week vowed to crack down on rip off overdraft fees.

It also threatened to ban fees for unarranged overdrafts which are incurred when customers breach their overdraft limit.

The pointed out these overdraft charges can be more expensive than payday loans.