End of free banking and cheap overdrafts?

Wednesday, 12 November 2008 11:06

New research suggests free banking in the UK may be coming to an end as interest rates rise on authorised overdrafts in the face of possible cuts to penalty fees

Research from Datamonitor points fewer avenues for cheap credit as interest rates on overdrafts rise and lenders cast a keener eye over borrowers expecting personal loans

"The credit crunch has led to overdraft credit becoming more expensive, and when you consider that lenders have clamped down on credit card and unsecured lending, this has drastically diminished the average consumer's ability to borrow," said Rod Logan, financial services analyst at Datamonitor.

He finds consumers under pressure from rising prices and unable to cut their spending may find costs on overdrafts - as loans and credit cards get out of reach - higher than expected.

Furthermore, the report finds, if the Office of Fair Trading (OFT) investigation into overdraft fees and charges finds them to be unfair, consumers may end up paying for current accounts as the banks look to make up for lost revenue.

Mr Logan suggests a charge per transaction for standard banking services could be one of the answers, as the banks will need to find other ways to reclaim the estimated £2.6 billion they receive from overdraft fees and charges.

"Fee-paying current accounts may be the last thing that consumers want, but potentially - by creating significant reductions in fees and charges for overdraft usage - this would present a lifeline for those in serious financial difficulty," Mr Logan said.

"The remaining question is: which bank is going to move first?"

• Tags:
• bank accounts
,
• news
,
• packaged accounts