The banking industry could be set for major changes after two of the newest current account providers suggested that 'free banking' is a complete misnomer.
Virgin Money and Tesco Bank have told the Competition and Markets Authority (CMA) that many so-called ‘free’ current accounts work out costly for consumers once costs are factored in.
The two challenger banks said complicated fees were being added on to compensate for the cost of providing free accounts, many of which now offer in-credit interest and bonuses.
Overdraft charges were the ideal means of recuperating funds, the two providers suggested.
Some accounts charge around 20% on arranged overdrafts – higher than the average credit card rate – while others charge a daily fee, which can lead to charges in excess of £30 per month.
Earlier this month, the CMA announced that it was launching an investigation into the current account and small business banking sectors.
The organisation said it was concerned that opaque charges, particularly overdraft charges, were making it difficult for consumers to adequately compare different accounts.
This is one of the reasons cited for a lower than expected take-up of the new current account switching system, which launched in September 2013.
The investigation will be chaired by Alasdair Smith, and feature a group of independent experts from various backgrounds, including law, business, and accountancy.
Thinking about switching your current account? Check out our latest review of five top accounts.