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Free bank accounts to ‘disappear within a decade’

A report from PricewaterhouseCoopers (PwC) has suggested that paid-for bank accounts will be the only option for consumers within the next decade, as they replace “unsustainable” free banking.

The report predicts that customers who do not wish to pay a monthly charge for their account will see restrictions to their account introduced, such as limited withdrawals or a block on using branches, and this would eventually lead to them being forced out of free banking.

Currently four out of five consumers are still using free banks accounts, despite the availability of a variety of ‘packaged’ bank accounts offering perks such as mobile phone insurance, travel insurance, breakdown cover and favourable interest rates. These packaged accounts usually start from around £10 per month, and the most expensive offering stands at £25.

However, the report from PricewaterhouseCoopers has said that free banking is now “unsustainable”, as banks are unable to turn the desired profit through them. Its author, Steve Davies said: “The problem is that while customers perceive their bank account to be free, it is of course not free... they have paid for it through overdraft charges, penalty fees and uncompetitive or zero rates of interest on credit balances”.

The report has come to the conclusion that over the course of the next decade free accounts will be phased out. This opinion has been reached by PwC after an analysis of the attitudes of bank customers, regulators and the present state of the current account market.

While half of customers who were surveyed said that they would switch banks if they were asked to pay for their banking, and two thirds said that they were unprepared to pay for everyday banking, it’s thought that this will do little to avoid an eventual switch to paid-for accounts for all. The report suggests that banks, instead of persuading customers to switch to a paid-for account, will slowly introduce limits to free banking that would eventually push customers over to packaged accounts.

Mr Davies continued: “You can see this happening already”, referring to Santander’s 123 account which has been the subject of an extensive marketing campaign.

“(free bank accounts) are likely to have restrictions on usage such as ATM withdrawals and overdrafts, and may have focus on channels such as online or phone banking. The principle would be that it is a genuinely low cost product for the bank to provide”, he added.

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