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Watch out for current account fees

Watch out for current account fees

Category: Banking

Updated: 22/03/2016
First Published: 21/03/2016

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 It is now over 6 months old so the content may be out of date.

Once upon a time, fee-free current accounts were the norm, but our latest research shows that this is no longer the case. In fact, the data reveals that more and more day-to-day current account customers are paying fees to use their account, and they're not always paying for the privilege of perks.

Traditionally, customers would pay fees to get extra add-ons (such as travel insurance or breakdown assistance), but not all fee-charging accounts continue to reward their customers in this way. The lure of the packaged account isn't as strong as it once was, but customers could still be paying a hefty amount for their everyday banking needs – and they may not even be earning interest.

In fact, over 90% of current accounts now charge fees of some kind, and it could tot up to an eye-watering sum. The figures show that customers who pay a regular management fee will be shelling out an average of around £131 a year, but out of these accounts, just 20% pay in-credit interest. In addition, 76% also charge a usage fee for authorised overdrafts (at £126 on average per year) and 75% charge an average yearly fee of £873 to use an unauthorised overdraft.

However, this may not be a bad thing. Contrary to popular belief, current account customers who don't pay a regular management fee aren't necessarily better off, as these customers may find themselves paying excessive overdraft charges when they dip into the red.

For example, more than half of current accounts without a regular fee (64%) charge an authorised overdraft usage fee of an average of £163 a year, far higher than the paid-for accounts. Worse still, a staggering 79% of these accounts charge an unauthorised usage fee, which can tot up to an average of £918 a year. Disappointingly, only 21% of these deals pay consumers in-credit interest.

This means that 92% of all current accounts for day-to-day customers will charge an account fee and/or an overdraft usage fee. The table below highlights the figures in more detail:

Authorised usage fee deals Authorised usage fee (pa avg) Unauthorised usage fee deals Unauthorised usage fee (pa avg) Pay credit interest Total account options
Current accounts with an account fee 39 £126 38 £873 10 51
Current accounts with no account fee 21 £163 26 £918 7 33

"It's clear that the concept of 'free banking' has become a bit of a myth for the majority of standard current account customers," said Rachel Springall, finance expert at Moneyfacts.

"The complex nature of current accounts makes it hard to choose the right option upfront, which means that when someone does borrow through an overdraft, the fees are likely to give them a nasty surprise.

"Only a handful of providers (M&S Bank, Metro Bank, Nationwide Building Society, Post Office Money and Tesco Bank) have accounts without management or overdraft usage fees. Instead, they charge interest for their overdrafts, which can be much more cost-effective.

"The Competition and Markets Authority (CMA) is due to publish its findings and recommendations on the banking industry towards the end of this year, and it's hoped that it will cover the issue of unfair charges and the complexity of comparing deals. A cap on charges would crackdown on excessive fees.

"In the meantime, consumers would be wise to weigh up any upfront rewards on current accounts and ensure that they pick an account that provides for both their short and long-term needs."

What next?

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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.