Newspaper article The Evening Standard (London, England)

Banks Make [Pounds Sterling]152 a Year in Overdraft Charges on Every Current Account

Newspaper article The Evening Standard (London, England)

Banks Make [Pounds Sterling]152 a Year in Overdraft Charges on Every Current Account

Article excerpt

Byline: JONATHAN PRYNN

HIGH STREET banks make [pounds sterling]2.6billion a year from overdraft charges on"complex and uncompetitive" current accounts, a report said today.

The biggest investigation yet carried out into Britain's most widely usedfinancial services product found banks make an average of [pounds sterling]152 a year percustomer mostly as charges and interest earned on balances in accounts.

The Office of Fair Trading concluded that customers found it difficult tounderstand the charges and to compare different banks' accounts.

The OFT, which has already brought a High Court test case against "unfair" bankcharges", currently under appeal, said the "status quo is not satisfactory" andthreatened more action if banks did not overhaul current accounts.

John Fingleton, chief executive of the Office of Fair Trading, said: "Thismarket is not serving customers well.

Customers lack the information they need to choose the best deal, and this inturn weakens the banks' incentives to compete. There is much the banks could doto improve how the market works." The report found the current accountsindustry is hugely profitable for the banks, generating [pounds sterling]8.3 billion, more thansavings accounts and credit cards put together.

There are 54 million active accounts, but almost nine out of 10 are payinginterest of 0.5 per cent or less on credit balances. This allows the banks tomake a huge profit by lending the money on at higher rates.

The OFT estimates that banks make more than [pounds sterling]4 billion a year from this,subsidising so-called "free banking".

More than 6.6 million paid at least [pounds sterling]100 a year and 1.4 million at least [pounds sterling]500.In total 12.6 million paid at least one charge. Charges, which can be as highas [pounds sterling]39 a day, rose by 17 per cent in real terms between 2003 and 2007.

But despite widespread dissatisfaction only a tiny minoritysix per centof customers switch banks, mainly due to "complexity and lack of transparency",according to the OFT. …

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