Current accounts marketed as ‘Free Banking’ to UK customers because there are no upfront fees make millions of pounds in profit because banks are manipulating the way interest rates are charged.
Interest rates on current accounts are assumed as 0 per cent, however there is a difference between this and the interest money would earn at the Bank of England Base Rate which is currently 0.5 per cent. This is known as ‘forgone interest’.
The admission came from Lloyds Banking Group during a Treasury Select Committee hearing yesterday as MPs accused the banks of ‘ripping off’ customers by charging interest rates that are ‘exorbitant’ and not making charges and fees clear enough.
Recent figures from the Bank of England show that the average interest rate on an agreed overdraft has hit an all time high of 19.09 per cent.
Lloyds’ retail director Helen Weir said: ‘The typical amount a customer pays for their current account, including forgone interest, is approximately the same as a cup of coffee a week.’
Royal Bank of Scotland retail Director Brian Hartzer commented: ‘Banking has never been free.’
Andrea Leadsom, a Tory MP at the meeting said: ‘It seems to me in at least the personal current account market that four banks are able to generate these enormous market shares, to make monopoly profits and to keep out new entrants.’
Lloyds said that the charges and profits earned from customer’s current accounts were not excessive and that staffing branches incurred serious overhead costs.
Craig Gedey Marketing Manager at www.Me2Money.co.uk the basic bank account provider said “Our basic bank account takes the worry out of banking for people who might not have perfect credit histories.”
“Customers never incur a hidden bank charge for a bounced direct debit or standing order.”
“Bank charges for bounced direct debits can easily mount up and your bank will decide when these charges are debited from your account which means you have little control of your finances and you could incur further charges.”
“With our basic bank account you pay a flat monthly management fee of 12.50 which is debited from your account on a monthly basis, which you can plan for, putting you back in control of your finances.”
“And the best part is if you have insufficient funds in your account to pay a direct debit, the transaction will just be cancelled, with no extra charge to you.”
Visit www.me2money.co.uk today for further details and to apply online now