Natwest and Lloyds are raising current account fees

'Free Banking' Set to End as Banks Raise Fees

08-May-2008, Writes Dan Drage dan.drage@consumerchoices.co.uk

Two major high street banking groups have announced OFT test case induced fee increases.

Royal Bank of Scotland (www.rbs.co.uk), Natwest (www.natwest.com) and Lloyds TSB (www.lloydstsb.com) are to raise monthly fees for millions of customers, in a move designed to counterbalance potential losses from capped unauthorised overdraft fees.

The increases will affect those who have signed up for packaged current accounts, whereby a monthly fee is levied to justify extras such as travel and mobile phone insurance.

On May 1st, 2 million Lloyds TSB Gold and Platinum account holders incurred monthly fee increases from £2 to £12 and £17 respectively. NatWest customers with an Advantage Private account will see their monthly fee rise by £1.40 to £19.95.

An estimated 40% of Lloyds TSB and Natwest current account holders have opted for a packaged account prior to these fee increases. If the OFT chooses to cap unauthorised overdraft fees, banks are likely to abolish free banking for all current account holders.

OFT officials have discussed their fears of a potential ‘waterbed effect’ if overdraft charges were capped, whereby a fall in certain charges would serve only to push up charges elsewhere. Lloyds TSB and Natwest have defended these moves by pointing out their customers asked for extra benefits, and in order to provide these extra benefits costs must increase.

A spokesperson for Lloyds TSB had the following to say:

‘Customers told us they would value additional benefits, and to cover the cost of these we have increased the cost of the Gold and Platinum accounts. Our added-value accounts are extremely popular with customers and continue to offer very good value for money.’

Chris Eagle, Commercial Manager at Credit Choices, could foresee this happening:

‘The phrase ‘robbing Peter to pay Paul’ springs to mind, and it was inevitable banks would pull this particular rabbit from the hat. I would advise you not to consider switching banks just yet, let’s wait for the OFT verdict on unauthorised overdraft fees and take it from there. Once the whole situation has shaken out a little, it will be easier to assess the competitiveness of each bank’s products.’