July 16, 2008 | posted by Pam Atherton in Banking, Savings |

Retail banks are in trouble again with the Office of Fair Trading  -   this time over current accounts, with the watchdog accusing them of  levying opaque charges, totalling £8bn a year.

 OFT chief executive, John Fingleton, accused the banks of   “charging more and more for things we can’t see” on the BBC’s Radio 4 Today programme this morning and that personal bank account holders were paying an average of £152 a year for the privilege.

He accused the banks of charging the most financially stretched individuals the most, with 1.4m customers paying over £500m in charges - or an average of £357 a year.

Today’s OFT report shows that of the £8bn revenue banks receive from current accounts,  £2.6bn derives from overdraft charges and £4.1bn from the difference between the interest banks earn on customers’ in-credit balances and the lower rate of  interest they pay to customers.

Mr Fingleton said that three out of four customers have no idea how much interest they are earning on their accounts and that the complexity of the charges made it difficult for customers to compare accounts.

“Few customers know how much they will be charged either before or after costs are incurred. To switch accounts, people need to know the average monthly balance on their account which only the bank can tell them. The complexity and lack of transparency mean people have little incentive to switch,” he said.

But the British Bankers’ Association hit back saying that free in-credit banking was almost unique to the UK and that those customers who don’t go overdrawn can get exceptionally good deals.

A case in point is the Lloyds TSB Classic and Classic Plus accounts which are currently paying 6 per cent on in-credit balances up to £2,500, despite base rate being at 5 per cent.

That said, many banks pay as little as 0.1 per cent on current accounts, particularly where the customer pays in small amounts or less than £500 a month.

Elsewhere, the legal fight between consumers and the banks over the fairness of overdraft charges looks set to be a drawn out battle lasting several years.

David Black, Defaqto banking consultant, comments: “I expect we will see a cap on overdraft charges and eventually the banks will recoup this revenue by ending free in-credit banking.”

In the meantime, you can compare account features in detail by using the Defaqto current account Compare Tool:

http://www.defaqto.com/consumer/current-accounts/compare-current-accounts.aspx