How free is your banking?

Monday, 02/02/2015

The introduction of a fee free current account by the Midland bank in the mid-1980s allowed customers who remained in credit to literally “bank for free”. Since then the major UK financial providers have all followed suit, meaning that they all offer a non-fee paying current account or two as part of their product selection. Like everything else in life, if something seems too good to be true, then it probably is, and free banking is no exception. Take a look at three common mistakes many consumers make when using their free account, which result in the bank benefiting richly at their expense.

Going overdrawn

Almost invariably, fee free banking is dependent on staying in credit. Go into the red and charges can be significant, particularly if the situation continues unresolved. Sometimes it’s cheaper to take out a swift same day loan to make sure there are sufficient funds in your account to cover your commitments.

Accepting additional products

Free banking customers are a ready audience for marketing other products and services. Every year people take out mortgages and loans with their current account provider, without checking to see what other products are available. Your bank won’t always offer the best deal, so don’t let the fact your free current account is with them blind you to considering other possibilities.

Becoming dependent

Particularly if you’re on a low income and find that you’re regularly incurring charges, finding the necessary monies to get your account back in credit (a prerequisite to switching bank accounts) can be a challenge. Once lured to a provider through the promise of free banking, unwary consumers can become trapped in a debt cycle that sees them becoming more and more indebted to the bank. Prompt debt advice and action is essential to prevent the situation worsening.

Thirty years after its introduction in the UK, free banking remains a popular option with many customers. By being aware of the potential pitfalls and taking timely pre-emptive action, it’s possible to enjoy many of the benefits of a free current account without ending up paying for the privilege.

Payday loans are not suitable for, and would be expensive as, a means of longer term borrowing and are not appropriate if you are in financial difficulty.

Representative 1269.7% APR

Back to resources

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk