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Unfair bank charges await decision while packaged current accounts are weighed up

27 February 2008 / by Rachael Stiles
Thousands of people are still waiting to hear whether or not they will be able to claim back the bank charges taken from their accounts over the last six years, so has evaluated the prospect of an end to free banking by comparing packaged current accounts.

Speculation has spread that if the Office of Fair Trading is successful in the high court case – which is intended to determine the legality and fairness of charges for exceeding overdraft limits and bouncing checks – then the banks will recoup the £3.5 billion they were making in profit each year by charging everyone for the privilege of having a current account.

Some banks have already introduced a fee, and customers can avoid these for the time being by switching current accounts, but this might not be possible for much longer if the judge rules in favour of the OFT and banks scrap free banking.

As a result, packaged current accounts, which offer a number of benefits in return for monthly payments of about £25, are becoming more popular. They sometimes offer more competitive interest rates and authorised over draft rates, in addition to a variety of other advantages, which can include mobile phone insurance or breakdown cover.

However, Michelle Slade, analyst at, warns customers that this is not always the case and they could end up worse off, despite the benefits package. Some of the biggest high street names in banking offer less competitive rates for being in credit or overdrawn than others available on the free market, she said.

"The benefits packages on these accounts vary from bank to bank and also by how much you pay each month." said Ms Slade. "These benefits can be quite attractive but only if you take full advantage of them, so make sure you register for them and make sure they fully meet your needs. How beneficial is car breakdown cover if it only covers you on a limited distance from your home? Alternatively, how often do you lose your mobile phone?"

In 2006, uSwitch found that banks were reaping annual rewards of £530 million from packaged current accounts, with eight million customers paying an average of £120 a year for 'benefits' that they didn't actually use or need.

Ms Slade concluded: "By transferring to one of the best buy current accounts you could not only save up to £300 through not paying the fee", she continued, but also the savings you make "will more than likely pay the cost of buying some of these benefits independently."

There has been a freeze on reclaiming bank charges until the courts have clarified the charges, but customers can still put in a claim in preparation for the outcome which is expected within the coming months.

© Fair Investment Company Ltd