I was genuinely astonished to read that Which? had “shattered the myth” of free banking.
Not because the research the consumer body published earlier this week contains any new information or revelations. I just do not think this myth exists.
There is certainly little in the headline claims from Which? about overdraft charges that the average man or woman on the street would not be aware of.
For example, the reports key finding is that if you go into the red without telling your bank, they will charge you. I reckon most people know this. The consumer body’s research quotes some big numbers for these charges – up to £900 a year – but this is based on someone who is overdrawn two days a month without permission.
This seems an extreme example. No information is given on how many people actually experience charges of anywhere near this figure, but I would be surprised if it is many. The full Which? article raises a valid point about the difference between the top charge of £900 a year and bottom charge of £120, but unfortunately this is not the focus of the research.
The report also cites charges on RBS/Natwest and HSBC accounts with an overdraw facility of 19.9 per cent APR. I know this is accurate because I am a HSBC customer and have dipped into my overdraft on numerous occasions.
Whether this charge is exorbitant is open to debate – Which? points out that it is higher than many credit cards and personal loans – but it is certainly not a secret. HSBC clearly tells you about it when you sign up and its online banking facility explicitly details in pounds and pence how much it has cost you to be overdrawn each month. Banks are an easy target and may be bad at some things but to me this seems like good, clear disclosure.
Which? also argues that current account customers are missing out on interest they could earn elsewhere. While my old sixth form economics teacher Mr Rouse would have revelled in this ‘opportunity cost’ argument, it is not a charge on the customer.
Whether or not the way bank charges are levied could be improved is a worthy debate. In my view, the current system is broadly a good one – it rewards people who do not spend more than they have and charges those who do. This is certainly preferable to a flat charge across customers which would effectively see those who are not overdrawn subsidise people who are.
But by attacking the supposed “myth” of free banking, an argument which centres on banks’ disclosure of charges and consumers’ awareness of them, Which? has turned its guns on the wrong target.
Tom Selby is a reporter at Money Marketing- follow him on twitter here