No such thing as free banking, warns watchdog

BANKS are squeezing money out of customers who sign up for “free” personal current accounts, the City watchdog has warned.

The Financial Conduct Authority (FCA) said consumers were forgoing money they could have received by getting a better deal elsewhere and could end up paying more in charges than if they had shopped around.

Banks were profiting by charging high overdraft fees or even cutting interest rates for those who kept their accounts in credit, the FCA said, as they had a “captive audience” of current account holders reluctant to switch.

Andrew Bailey, the FCA chief executive, went as far as saying: “There is no such thing as free banking.”

In its progress report into a review of retail banks’ business models, the FCA said major banks also had more than 80 per cent of all personal current accounts, giving them “considerable competitive advantages”. It said most current account customers contributed to their bank’s profits, but around 10 per cent generated between a third and a half of all contributions to profits from current accounts.

The watchdog also said banks made £2.3billion a year from account holders who slipped into the red.

MPS last night demanded greater clarity on charges, with Simon Clarke, the Tory MP, telling the Daily Mail: “Hopefully, it will come as a wake-up call that banks need to take a more transparent approach.”

Mr Bailey said: “This is an important piece of work... It provides more evidence that there is no such thing as free banking. In particular, this evidence will inform the work we are doing on overdrafts, so we can fully understand the potential effects of the significant action we are considering taking.”

The FCA said developments such as changing customer behaviour, new technology and bank closures could lead to significant changes in the overall picture of the market.