Are the days of free banking over?

First Direct has announced plans to charge customers a monthly fee unless they deposit at least £1,500 a month in their current account. Are other banks set to follow suit?

First Direct has just announced that as of next February it intends to charge customers a monthly £10 fee if they don't keep, or deposit, at least £1,500 a month in their current accounts. There had been speculation for some months that free banking in the UK was not long for this world: retail bank profits have been hit by a series of regulatory rulings against bank charges for credit cards and unauthorised overdrafts, so it makes sense that they would try and claw the cash back somehow. The surprise, however, was that the first to break ranks was First Direct, which has long been one of Britain's best-loved banks.

Why have First Direct introduced current account fees?

First Direct denied that it was trying to boost fees, says Ian Cowie in The Daily Telegraph. Instead, it said that it was targeting 300,000-odd dormant and rarely used accounts, the idea being either to get rid of them or make them use their accounts properly. "We expect that 85% of our customers will not pay the fee and would be happy if none of them did," said a spokesman. "That is why we have made it simple for them to avoid the charge either by paying more in or taking out another product, such as a savings account or credit card, in addition to their current account."

Those who'd rather move their current account should find that it has never been easier to switch bank accounts. Since the Banking Code set minimum standards, it takes three days to transfer debits and standing orders and any charges incurred for delayed or missed payments during the transfer must be cancelled. To switch accounts, you need first to decide what type of customer you are. If you tend to be in credit, find an account with a good interest rate. If you tend to "slip into the red", go for one with low charges. According to Susan Hannums, of AWD Chase de Vere, Alliance & Leicester "knocks the socks off most of the other banks" for those in debit or credit. It charges 0% on authorised overdrafts for the first 12 months and 5.9% thereafter and pays 5.94% on deposits.

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Will other banks follow First Direct's lead?

The question now is whether other banks will follow First Directs lead. Halifax has stated that it is committed to free banking and HBOS and Barclays denied they plan to introduce charges. This may change, says Sam Dunn in The Independent on Sunday. Ordinary current accounts have been free for more than two decades, but free banking has become a "dangerous habit". It costs banks to set up accounts and look after our money at least charging for them is an honest way of getting paid for it. As long as basic' bank accounts remain free for those on low incomes "and I'm convinced the Financial Inclusion Task Force will ensure this" then most people probably wouldn't mind a small fee in return for transparency regarding what these management' fees are for.

Emily Hohler

Emily has extensive experience in the world of journalism. She has worked on MoneyWeek for more than 20 years as a former assistant editor and writer. Emily has previously worked on titles including The Times as a Deputy Features Editor, Commissioning Editor at The Independent Sunday Review, The Daily Telegraph, and she spent three years at women's lifestyle magazine Marie Claire as a features writer for three years, early on in her career. 


On MoneyWeek, Emily’s coverage includes Brexit and global markets such as Russia and China. Aside from her writing, Emily is a Nutritional Therapist and she runs her own business called Root Branch Nutrition in Oxfordshire, where she offers consultations and workshops on nutrition and health.