Is Free Banking Free?

28 May

 

Free banking is a 'myth', says UK's top bank regulator

Free banking is “a dangerous myth”, according to Andrew Bailey, who is due to become the chief regulator of the financial services industry. He says customers may think their account is free, but the true costs are actually hidden.

Typically, hidden costs include extremely low-interest rate that many banks offer on current accounts and high overdraft and lending rates.

The reform of retail banking must tackle the issue of “free” in-credit banking. We as consumers need a better understanding of what we pay for and how we are paying.

The banks have self-regulated on this for years but the outcome has not been successful, otherwise this would not be an issue. Ironically, this hidden approach to costings has made it difficult for banks to understand and manage their costs and profit centers. There is a growing school of thought who believe this sales oriented approach where customer benefit is secondary could be a contributing factor to the mis-selling of financial products (currently over £9bn in compensation for mis-selling of loan insurance alone).

It seems that the Financial Services Authority is seriously considering that the regulator or government will actually have to intervene to end the myth of free banking.
 
Consumer Focus believe there would be real value in establishing a more open and honest relationship between banks and their customers. So that consumers would know the interest they gave up and the costs they incurred and whether others are offering better value for money.

The risk is that banks will take advantage of a change to the system and provide the worst of both worlds – paying for accounts but still enduring unfair charges, opaque and complex products, mis-selling and poor customer service.

Personally, I hope Andrew Bailey will truly act in the best interest of the consumer – and stop the current system of unfairness.

 

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

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