Fee-free basic bank accounts agreed in Treasury deal

Posted by Rebecca Stains in Banking on 24 December 2014 - Rebecca worked as a Credit Analyst at checkmyfile until 2015

A new template for basic bank accounts has been revealed by the Treasury, following on from a deal with major banks to make these accounts free from any fees. Basic accounts do not offer overdrafts or cheque books, and are usually provided to those of us with a bad credit history.

Some customers who hold these accounts have incurred fees of £30 or more after a direct debit or standing order payment has bounced. The cost can then escalate if the fees are unpaid. Under the new terms agreed, these fees will be scrapped.

Economic Secretary to the Treasury, Andrea Leadsom, says the new accounts would give basic bank account holders certainty and clarity. "It will end people being effectively locked out of their basic bank accounts due to high fees and charges when their payments failed," she adds.

Account holders should also be offered a debit card, in order to withdraw cash from the UK's ATM network. Some banks have, at times, withdrawn or reduced basic account holders' access to cash machines, prompting criticism from campaigners.

An estimated 9m people hold basic bank accounts in the UK. Nine high street banks (representing 90% of the UK current account market) have signed up to the new deal. The British Bankers Association (BBA), who worked with the banks, say the revised account is aimed at people who might not be able to open a standard account and those in financial difficulty.

BBA chief executive Anthony Browne says, "These basic accounts will make it easier for more people to manage their money. They will have many features that will help people to budget, pay bills and save up".

The EU authorities agreed a directive earlier this year that said that all residents should be given the opportunity to open a basic bank account, with fees that were fair, and allowed people the opportunity to switch providers.

Mike O'Connor of StepChange debt charity says, "The experience of our clients is that access to basic bank accounts is extremely sporadic across the sector, and things like high charges and limited access to cash machines can cause real problems on a day-to-day basis. This move will give hope to the millions of people who currently feel locked out of the banking system, and help them to regain control of their finances. However, signs of financial difficulty should not be ignored. We would urge banks and those across the credit sector to do more to recognise when people are falling behind on their essential bills and credit commitments, and signpost them to free independent debt advice as early as possible”.

Basic bank accounts have often lacked clarity around certain fees and uncertainty as to who can and cannot apply but hopefully this should now change.

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