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Is it the end of free banking?

Is it the end of free banking?

Category: Banking

Updated: 18/04/2017
First Published: 08/09/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

This month marks the two-year anniversary of the Current Account Switch Guarantee, which has allowed banking customers to switch provider within seven working days with a minimum of fuss. However, while many consumers have already taken advantage and switched, even greater momentum could be caused by incoming changes to the retail banking market.

Last month, the Competition and Markets Authority (CMA) reported that of the 17% of customers who start looking to switch their current account, a staggering 86% don't go on to switch. It's also estimated that the annual rate of switching stands at just 3%, and worryingly, 25% of switchers move their account without researching the market first.

Meanwhile, frequent overdraft users were found to be the least likely group of consumers to move, largely due to the perceived hurdles of securing an overdraft facility with their new bank and the complexities of comparing account charges (something that is increasing in importance as average authorised overdraft usage fees have crept up from £4.59 to £6.74 in just two years).

In a bid to boost competition and fuel switching, the CMA will be publishing its provisional findings and remedies on the retail banking market next month. It's expected that the final report (to be released in April 2016) will propose changes that could have big repercussions for the current account market, triggering competition between banks and encouraging customers to switch, something that can only be good for consumers. However, there are also concerns that this could lead to the end of 'free' banking, as Rachel Springall, finance expert at, comments:

"Consumers are likely to be familiar with the Switch Service by now, but is it improving attitudes towards current accounts? The CMA highlighted that both types of customers – those who look at switching and those who subsequently move – expressed dissatisfaction with their bank, so it's good that they are no longer putting up with their poor service.

"Rewarding switchers also seems to be the biggest trend in the market right now – Halifax, for example, is currently offering switchers £125 to move followed by an additional payment of £5 per month. Unsurprisingly, these rewarding monthly payments appear to have encouraged over 400,000 customers to switch to Halifax since the launch of the switching initiative.

"It therefore appears that the Switch Service has encouraged many people to vote with their feet, but there's a chance that more consumers could be incentivised by plans to increase competition.

"These potential plans mean that the market overall is under increasing pressure to have a more level playing field, and while this is certainly good news for consumers, there could be a downside. Potential limits on the number of branches per provider and increased borrowing costs could mean that we begin to see an increase in the number of banks charging monthly usage fees. So, could we be heading towards the end of 'free' banking?"

Unfortunately, that could be the case, with fee-charging accounts potentially outweighing fee-free versions. It's hoped that providers will offer an increased range of rewards in an attempt to remain attractive to consumers, but in the meantime, why not see what kind of account appeals? Now could be the perfect time to take the plunge – high interest current accounts and those that offer cashback or rewards are proving to be particularly popular – and given the level of competition, you never know what benefits you could come across.

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