Fee Paying U.K. Current Accounts Double, Big Profits for the Banks

By: MoneyFacts

In the current economic climate, current account credit interest rates have fallen significantly. So much so, that a number of providers have decided to scrap paying credit interest altogether.

In recent weeks, NatWest and RBS have stopped paying credit interest on all of their current accounts.

While Santander has stopped paying credit interest entirely on selected current accounts and stopped paying credit interest on any balance over £2,500 on others.

The banks add to a growing list of providers that no longer pay credit interest on current accounts, including Barclays Bank, HSBC and The Co-operative Bank.

More than half (55%) of current accounts on the market pay no credit interest, while a further 28% pay 0.10% or less.

At the same time, the number of fee paying current accounts has doubled in the last five years

Michelle Slade, spokesperson for Moneyfacts.co.uk, commented:

“The loss of interest at 0.10% is likely to make little difference to each individual customer, but for the banks it will be a significant cost saving.

“Most people bank with one of the big banks, so it is highly likely the majority of people are receiving no interest on the money in their current account.

“Anyone maintaining a significant balance in their current account should consider switching to an account that pays interest or move their money into a savings account.

“Customers remain reluctant to switch current accounts as it’s seen as too much hassle, but by doing so they could make more of their money.

“If the rising trend in fee paying accounts continues, it could suggest the beginning of the end of free banking as we know it.

“Banks are keen to tempt customers into opening fee paying accounts as a large proportion of customers will pay the monthly fee and not use the benefits.

“A few years ago, fee paying accounts offered better overdraft and credit interest rates as well as additional benefits, but this is no longer the case.

“In some cases a fee paying account can be beneficial as many come with worldwide travel insurance and breakdown cover.

“The Co-operative Bank’s ‘try before you buy’ initiative allows customers to take advantage of the benefits for a year before they start paying the monthly fee. 

“At a time when family finances are stretched customers need to ensure they have the best account for their needs.”

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