Do you enjoy free banking or do you pay your bank for the privilege of keeping your money safe? It’s well known in the UK we rarely change bank accounts.  You may not even remember why you bank with the bank which has your custom.  There seems to be no other service where we are so complacent.  But is it worth seeking out a free bank account?

Let’s first dispense with one red herring.

There is no such thing as free banking.  Not really. You may think you have nabbed free business or personal banking. But it’s worth reflecting how banks make money. There may be no monthly free for your current account but there will be a quid pro quo in the form of a reduced interest rate and/or charges for other services such as cheque books or deposits.  On the other hand about 20% of those with bank accounts have what’s called a ‘packaged’ account. Many private banking accounts fall into this class. You pay a monthly fee, but many ‘extras’ are bolted on such free travel insurance or reduced price vehicle recovery.  There may also be other incentives such as access to preferential mortgage rates.

Let’s look at a specific example of how complacency can cost.  Recently one bank moved some of its private clients to a new form of account. Customers had the option of opting out of the migration by ’downgrading’  but that would have meant losing their current account number. Anyone with more than 5 direct debits/standing orders may have thought it wasn’t worth the hassle. But the upshot is the new default account carries monthly fees and reduced interest rates but offers extensive benefits. But what if you find you don’t make sure of these benefits? Would you still think the new account offers value?

What really matters when deciding whether to have so-called ‘free’ or paid for banking is to reflect on what you need and then make an informed buying decision. For example, let’s suppose your business makes use of an over-draught at certain times of the year. In that instance you may consider advantageous over-draught terms your most important consideration. But it’s very hard to work out the overall ‘true cost’ of an account. You may find comparison websites of some value but don’t lose sight of your priority services.

What seems to be true is that most people find their banking needs change over time, yet we don’t take stock of our changing banking needs. Someone with sophisticated personal or business banking needs may benefit from a paid for account or perhaps ought to have more than one account. At the other end of the spectrum if past experience shows your banking needs are simple, seek out a no-frills account.