“Free” Banking

Today the Daily Mail is very angry about the possible end of free banking.

Banks and building societies are moving to kill off free banking as they prepare to unveil record profits of more than £40 billion.

Industry leaders claim compulsory monthly fees on current accounts, which are common in North America and Europe, are the ‘fairest’ way to charge.

And it really doesn’t require a crystal ball to predict their readers’ reponse.

Little wonder so many people are leaving the United Kingdom and setting up homes abroad!

Well if they do introduce charges for ALL current accounts, I shall move my money to another source and go back to paying my standing orders personally!
It’s disgusting, they make millions from investing our money. what more do they want, blood?

Ah, the old country is living up well to it’s nickname. ‘RIP OFF BRITAIN’.

This is a particular favourite:

It’s high time we had an alternative to banks. If they are making these obscene profits, where are they making their profits from, if not their customers? Banks should not rule the world, they are criminal institutions. It’s called usury.

We used to have an alternative to banks. They were called building societies. And they were accountable to their members (i.e. the people who had accounts with them) rather than their shareholders. Of course, we don’t have many left now because the greedy British public has voted to change them all into banks. I bet the £500 or so that most people got out of the deal has all been spent. Does it look like a good deal now?

But my main problem with this whole debate is the concept of “free” banking. Banks are businesses. They need to make profits for their shareholders. You need to pay for using their services. There are three common ways that this happens:

  • The bank siphons off some of the money it makes by investing your money (this is how most personal accounts currently work)
  • The bank charges you for each transaction you make transaction (this is how most business accounts currently work)
  • The bank charges a fixed fee each month (this is how some premium personal accounts currently work)

None of these are free banking. They all cost the consumer money. It’s like “commission-free” foreign exchange. Jsut because there’s no separate charge on the bill, it doesn’t mean you aren’t paying for it.

There is, of course, an interesting debate to be had on the subject of bank charges and profits. Do they really need to make that much money? If they switch to a model that charges by transaction then how much will savings interest rates increase by? Which charging model best suits different types of bank customers? There are many areas that the media can cover on this topic.

But intelligent debate isn’t helped by shoddy journalism like the Mail‘s and the use of emotive terms like “free banking”. It doesn’t exist. It never has and it never will. Get used to it.

Update: It seems the BBC made a similar mistake yesterday.

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