Will an ageing population end free banking?

FREE banking could disappear because of the strain of the world’s ageing population, experts warn.

Record-low interest rates and sluggish growth have hurt banks’ profits – making it increasingly difficult for them to offer accounts for free, according to the International Monetary Fund (IMF).

Banks make money by lending customers’ cash and pocketing some of the interest as profit. But as the population gets older, fewer people are expected to need loans.

And demand for cheap accounts is likely to rise at the same time. The IMF said: ‘In this scenario, domestic banking in advanced economies may generally evolve toward provision of fee-based and utility services.’

This change could push many small lenders into collapse, while large banks may take more risks to try to keep money coming in.

Increasing numbers of elderly people would also have a devastating effect on life insurers, which would be forced to maintain high payouts even as ultra-low rates made it harder for them to earn money. Health and long-term care insurance would become more important and defined benefit pension plans – which guarantee savers a proportion of their salary at retirement – would become more difficult to sustain.

In its global financial stability report, the IMF said recent improvements in the US economy suggested that the global economy may be able to halt the decline.

But they pointed to Japan, which has been stagnating economically for two decades, as evidence of what could happen to countries with an ageing population.

The IMF said: ‘A combination of slow- moving structural factors, notably population ageing and slower productivity growth common to many advanced economies, could conceivably generate a steady state of lower growth and lower nominal and real interest rates in these countries.’