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The free bank account myth

The free bank account myth

Category: Banking

Updated: 08/08/2017
First Published: 08/08/2017

Many people may be tempted to believe that they are getting a 'free' bank account when they don't see any upfront or monthly fees, but our latest research shows that nine in 10 current accounts charge some kind of fees, so you may be less lucky than you think.

Current account minefield

The current account market can be a minefield for anyone trying to find the deal with the lowest cost, as many may forget about the fees attached to using an overdraft. Whether such an overdraft is authorised or not, the fees that come with dipping into the red can sometimes outweigh any perks that the account may have offered to tempt you in.

And that's supposing you get any perks at all. The table below shows that very few accounts on the market pay interest, with only 15 out of 80 offering such a deal. That means that, if you're paying a regular account management fee to the tune of £147 per year on average, you only have eight options that allow you to earn any interest in return.

Average monthly finding Paying interest at £1k Average account fee Authorised usage fee charged Unauthorised usage fee charged Total account options
Current accounts with an account fee £181.91 8 £147.43 36 28 47
Current accounts with no account fee £259.09 7 N/A 19 22 33
All accounts* £213.75 15 £86.62 55 50 80
*Figures include standard current accounts in GB (excluding basic, private, student, graduate and youth accounts).

What's worse is that, of those who are paying management fees, 77% will still be charged for arranged overdrafts, while 60% will be charged for unarranged overdrafts. This compares to accounts without regular fees, where 58% charge for authorised overdrafts and 66% charge fees for unauthorised borrowing.

Usage fees conundrum

The reason that overdraft usage fees are such a big deal is explained by Rachel Springall, finance expert at moneyfacts.co.uk: "The way providers charge customers for going overdrawn has been leaning towards usage fees rather than interest, which in most cases is much more expensive. 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."

Indeed, there are just a miniscule number of providers left that offer accounts without management or overdraft usage fees, namely M&S Bank, Metro Bank, Nationwide Building Society, Post Office Money and Tesco Bank. These providers will still charge interest on overdrafts, but that tends to be a much more manageable way of dipping into the red compared with usage fee options.

Rachel points out that for a current account to be considered good, "the tariff to borrow should be fair and providers should at least attempt to assist customers who slip further into the red on a frequent basis." To help, all our banking Best Buy tables show you the overdraft charges you can expect on each Best Buy deal, giving you some clarity when it comes to choosing an account.

What next?

Hopefully you will now have a better idea of what to look out for when searching for a current account. If you want to make absolutely sure you can't drop into the red, however, there are basic bank accounts to consider, which come without any overdraft facility.

If on the other hand you are someone who manages to never go overdrawn, then there are high interest current accounts to consider, which tend to come with high overdraft charges and other restrictions, but also the chance to earn something back from your current account every month. Alternatively, did you know we have a free bank account Best Buy chart?

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

 
 
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