The end of free UK current accounts?

The end of free checking gathers pace.

On 24 May, Bank of England executive director for banking supervision Andrew Bailey said that the "myth" of free banking enjoyed by customers when not overdrawn made it hard to link costs to products and services received.  UK current account customers will not warm to his argument or its likely implications but the High Street banks will welcome the argument to end free checking if-in-credit.

It is a trend already being endured by customers in Ireland. If you think that the banking crisis was bad in the UK, spare a thought for customers across the Irish Sea. Following a sector wide crisis in 2008 – the cost to the Irish taxpayer so far is about €70bn, give or take - six Irish owned banks have become two so called ‘pillar banks’. The big two (pillar) banks left standing – Bank of Ireland and Allied Irish Banks - are now rewarding taxpayers for their support by ramping up fees for everyday banking for a sizeable proportion of the country.

Bank of Ireland kicked things off by raising fees affecting almost one-half of its 1m customers in March. AIB has come out in sympathy and will follow suit with the end of universal free checking from 28 May. Only Royal Bank of Scotland-owned Irish subsidiary, Ulster Bank, now offers universal free current accounts. It does not however rule out following Bank of Ireland and AIB.

Ulster Bank spokesperson Debbie McCaughey said:

"I can confirm that Ulster Bank does not charge a monthly fee on standard current accounts. As with all our products and services, we keep our current account offering under continual review."

So we now have the irony of the UK government bailed-out RBS Irish subsidiary standing to win over account switchers from the two Irish government-backed lenders, Bank of Ireland and AIB. There is one further irony. Bank of Ireland has not (at least not yet) ended universal free if in credit current accounts for its customers based in Northern Ireland.

In fairness to Bank of Ireland, a lot of its customers can get around the monthly current account charges. If, for example, they deposit at least €3,000 into their current account and make nine debit payments from that account using the telephone or online banking over a three month charging period, they will avoid charges. Students and customers aged over 60 are also exempt. In addition, customers who maintain a permanent credit balance of at least €3,000 (a relatively small percentage of clients) qualify for free banking. Customers not qualifying for free banking will pay €0.28 per transaction or a flat fee of €11.40 per quarter for up to 90 transactions with excess transactions charged at €0.28 each.

AIB’s fees strategy is worse – much worse. AIB spokesperson Helen Leonard told me that the fees change “is driven by the need to enhance cost recovery across all AIB businesses, including the provision of money transmission services, the cost of which is significant.” So from 28th May AIB will seek to recover some of the losses it incurred following the crash by imposing current fees for customers who do not maintain a minimum daily credit balance of €2,500 for the full fee quarter on a personal current account.That will take in 60 per cent of its current account customer base. The 40 per cent of exempt customers will, in the main, be the other exempt customer categories: students, recent graduates and clients aged over 60. The 60 per cent of AIB customers affected will be charged €0.20 per debit card transaction while writing a cheque or withdrawing cash at an AIB branch will cost €0.30 per transaction.

In a statement, Bernard Byrne, director of personal and business banking at AIB, said:

"Free banking offerings across the industry have changed significantly in recent times. While this was a difficult decision to make, nonetheless it is a necessary one if we are to continue to create the conditions in which we can become a strong and viable entity again."

The fees bombshell for Irish bank customers follows an incessant stream of bad news in the local banking sector. Around 6,000 banking staff in Ireland have left the industry in the past three years. Thousands more are set to follow with AIB looking to shed another 2,500 jobs; Bank of Ireland will let up to another 1,000 staff go under a voluntary redundancy scheme agreed with trades union The Irish Bank Officials Association.

Ulster Bank is also bloodletting and will lay off 950 staff in the short to medium term.UK High Street lenders will be watching intently to see if Bank of Ireland and AIB can make the current account fees stick.With such limited competition on the Irish Main Street, there is every chance that Irish customers –or at least those who do not switch to Ulster Bank - will just grin and bear it.

In the UK, there are already 10m chargeable current accounts, with customers paying an average of £185 in fees per year.That is already worth big bucks to UK banks: about £1.8bn in fees last year across the sector.But such accounts are termed packaged accounts (or added value accounts, as banks prefer to call them) and typically offer a bundled range of incentives such as mobile phone insurance and car insurance, other preferential financial services including overdraft, personal loan or mortgage, as well as non-financial products and services.

There were approximately 54m active current accounts in the UK in 2011 and packaged current accounts made up about 17 per cent of the UK retail banking market. The number of charged for current accounts on offer in the UK (69) has more than doubled from the 33 on the market just five years ago and since late 2009 has exceed the number of free in-credit current accounts on the market. Thus far, no UK bank has gone for broke and made the decision to start charging for all current accounts for fear of losing market share. With encouraging noises off from Andrew Bailey – and a bank sector enthusiastic about finding new ways to charge for services currently not charged for - that day may not be far off.

Douglas Blakey is the editor of Retail Banker International.

Bank of Ireland: Photograph: Getty Images

Douglas Blakey is the editor of Retail Banker International

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.