Will Lloyds TSB put an end to free banking?

With a strong possibility that financial regulators in the UK will make banks reduce their charges for consumers that become overdrawn, many experts think that free banking could become a thing of the past, as banks try to recoup the losses that they are likely to make through making cuts on overdraft charges.

A number of banks have already implemented or announced that they will be charging many of their customers that hold current accounts, and as the prospect of lower overdraft charges becomes more of a reality many other banks may switch to the same system.

Free banking was introduced in the UK around two decades ago, and this is now one of the few European countries that still offers free banking to customers. However, many industry professionals think that in order to make up for revenue losses through cuts in overdraft charges banks will have to start looking into making up for it elsewhere, and an obvious choice is to charge on current accounts.

The Chief Executive of Lloyds TSB stated that it was impossible to tell whether the bank would have to start charging customers for holding current accounts until further information was available with regards to possible cuts in overdraft charges.

He stated: "If there were to be a reasonably sizeable change then you would probably see a change from some of the players in the UK market. How that manifests itself is unclear. Over time, if you look at what happened in other markets you would probably see the UK follow some kind of similar pattern."

However, Lloyds TSB has announced that it will be charging an annual fee of thirty five pounds to credit card holders who do not use their credit cards, a charge that will apply to around fifty thousand customers.

Tom Smith
03.03.07