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Last Updated: Thursday, 26 April 2007, 11:17 GMT 12:17 UK
Q&A: Banking investigation and you
Bank customers at an ATM
Customers could be charged for withdrawing cash
The Office of Fair Trading (OFT) is to investigate how current account providers treat their customers.

BBC News examines what this could mean for your personal finances.

Why are current accounts being investigated?

The OFT wants to know if so-called "free banking" is as described.

It will look at whether consumers are actually paying for their "free" current account service through backdoor charges.

In short, the OFT is concerned about lack of transparency.

For example, under the banner of free banking, are current account providers pocketing large amounts in interest on cash held in accounts, levying high charges for using cards abroad or even making money from the time it takes for cheques to clear?

You can claim the last six years of charges, or five if you live in Scotland

At the root of this investigation is a long running dispute over charges levied on customers who go into unauthorised overdraft.

Consumer groups argue that the charges levied by banks and building societies on customers going into unauthorised overdraft are too high and unlawful.

Last year the OFT launched an investigation into this area that could lead to charges being cut.

At the same time, thousands of UK consumers have threatened their current account providers with court action if they do not return previous charges.

I have read that there is a threat to free banking, is this true?


There are some powerful voices inside the banking industry that have questioned whether free banking has a long term future.

They argue that if current account providers are barred from levying charges on people who go overdrawn or bounce cheques then they cannot afford to offer free banking.

The OFT is taking this threat very seriously.

It wants to take a bird's-eye view of the whole market.

If free banking is to end, it wants to ensure that the regime that replaces it is transparent.

In other words, everyone knows what they have to pay for their banking services.

If free banking was to end, what services could I end up paying for?

There have been suggestions that customers could be charged a monthly account management fee.

Without greater clarity, genuine competition will never flourish
Robert Peston,
BBC business editor

Another possibility is that banks could start charging for individual transactions, say a small fee levied each time you use a cash machine, cash a cheque or set-up a direct debit.

Of course, current account providers could choose to introduce both a management fee and a suite of individual charges.

I can afford to pay for my current account, but I am worried that my mother, who is a pensioner, will not be able to cope. Is there no alternative?

You don't have to worry for your mother quite yet. A lot of things can happen before time is called on free banking.

If the OFT investigation concludes that there is in fact no such thing as free banking anyway, then we may see the UK move to a position where everyone pays for the services they use.

For example, your mother could pay when she uses a cash machine, but could receive a higher rate of interest on her money held in the current account.

Ultimately, your mother may even be better-off.

Some commentators have suggested that pay-as-you-go banking is much fairer state of affairs than what is happening at present.

When will we know more?

The OFT has promised to conclude its investigation into free banking by the end of the year.

Its side investigation, into unauthorised overdraft fees, is due to conclude later this year.

But it would be no surprise to see both investigations rolled together.

The OFT will then want to consult with the current account providers and consumer groups over the next step.

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