Paying for banking

Banking services have never really been ‘free’, although it is easy to see why many bank customers might have seen it that way.

The decision by Marks and Spencer to charge a monthly fee of up to £20 for users of its new current account has highlighted the cost of banking.

While it has become increasingly common for banking customers to pay for packaged accounts, which offer things like breakdown cover and travel insurance, current accounts have largely remained fee-free, until now.

The M&S current account does offer some benefits in return for the £20 monthly fee; insurances, a competitive savings account and an interest-free overdraft. There is also a £15 per month account option.

When banks don’t charge an explicit monthly fee, they seek to make money from their customers in other ways.

Access to current account information is often used as a springboard for selling other financial products. If you make a large deposit into your current account, expect a sales call within a day or two.

This bares some resemblance to how the world of retail financial services used to work.

It used to be common for independent financial advisers to work on a speculative basis, perhaps offering a ‘free’ review of existing financial arrangements, in order to identify product selling opportunities.

Whilst the new regulations being introduced for financial advisers on 31st December 2012 does not put a stop to this practice, it should at least reduce its frequency. Instead, advisers will charge explicit fees for different activities, always agreed in advance with investors.

Savers and investors should always treat the word ‘free’ with suspicion. No commercial entity provides a service for free. What’s the catch?

Photo credit: Flickr/ell brown