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Fears grow for the end of free UK banking

·Senior City Correspondent, Yahoo Finance UK
·3-min read
An HSBC ATM machine in Stoke, England. Photo: Nathan Stirk/Getty Images
An HSBC ATM machine in Stoke, England. Photo: Nathan Stirk/Getty Images

Bank bosses have sparked fears that free current accounts could soon become a thing of the past in Britain.

The chief executive of HSBC (HSBA.L) Noel Quinn has warned that the lender could be forced to start charging customers for basic banking services, while the boss of NatWest failed to rule out introducing charges in future.

“We’re committed in the UK to offering the basic bank account, which is a fee free basic bank account, but we will look in all our markets at the appropriate pricing strategy for fees,” Quinn told journalists on an earnings call this week.

READ MORE: HSBC axes 6,000 jobs so far this year as cost cutting accelerates

Alison Rose, the chief executive of NatWest Group, said her bank had “no current plans” to start charging fees for retail banking services, but failed to rule out future changes when pressed by journalists.

The comments have led to fears that Britain’s banks could start introducing fees for basic services such as cash withdrawals and money transfers.

“If one does it, all the others will jump at the chance,” said Sarah Kocianski, head of research at financial services consultancy 11:FS.

READ MORE: NatWest returns to profit but warns of 'challenging times ahead'

Britain is relatively unusual in offering fee-free banking as standard to retail customers. In Europe and the US, most banks either charge customers for current accounts or charge for services such as cash withdrawal and money transfers.

The competitive nature of the UK banking market and the country’s large economy has meant banks have so far avoided charging fees. Lenders make enough from other products, such as mortgages and business loans.

But ever declining interest rates are putting pressure on profits. Banks make most of their money through net interest margin — the difference between the rate paid out to savers and the rate charged to borrowers. The collapse of interest rates in the decade since the financial crisis has squeezed this margin.

READ MORE: Lloyds beats forecasts and returns to profit in third quarter

“There’s clearly pressure on the current model in the lower for longer interest rate environment,” NatWest boss Rose said on Friday. “It’s one of the reasons why we’ve introduced current accounts that offer a level of service and benefit that our customers are willing to pay for.”

COVID-19 has only heightened pressure on profit margins. The Bank of England cut the UK interest rate to a historic low of 0.1% earlier this year as the pandemic struck and is now talking about the possibility of negative interest rates.

Watch: What are interest rates and how do they work?

“If the Bank was to introduce negative rates, we’ll have to asses then how we would respond,” Lloyds Bank (LLOY.L) chief executive António Horta-Osório said this week when asked about the possibility of introducing fees. “I think there is little to gain in speculating at this point.”

READ MORE: Bank of England stokes negative interest rate speculation

Negative interest rates have been a reality in parts of Europe for years. Laith Khalaf, a financial analyst at AJ Bell, said the experience on the continent suggests most banks won’t charge customers for holding cash but could start charging for services.

“While savers might not explicitly pay interest to their bank, it’s possible banks would introduce fees instead,” he said.

Campaigners say the death of free banking would have a devastating effect on the worst-off in society.

“Now more than ever, we need public banking options, to reflect the fact that the money and payments system is a public utility we all rely on,” said Fran Boait, executive director of campaign group Positive Money.

“This is especially alarming as banks are among those pushing us towards a cashless society, which would force us to rely on them to make payments.”