The True Cost of ‘Free Banking’

The Office of Fair Trading is calling the bluff of the big banks.

The banks have threatened to end "free banking" if they are banned from levying stiff penalty charges on those who breach overdraft limits - which could result from an investigation by the Office of Fair Trading (OFT) that is currently in progress.

That sounds like the kind of threat which could damage the standing and popularity of the competition watchdog. So it has bitten back by launching a "market study" which will examine just how free "free banking" really is. You can tell that the OFT doesn't think it is very free: its formal announcement last week referred to "so-called free banking".

We have written in the past about the substantial charges levied by banks and how difficult it is to work out what the banks charge us for their services: the way they charge is complex and the information they often provide is baffling.

And as John Fingleton, the director general at the OFT, pointed out, there are hidden charges for millions of people who keep their current accounts in credit but receive next-to-no interest payment.

Now there have been plenty of studies allegedly proving that we receive the best value banking services in the world. That may be true. But we are also blessed with some of the most profitable banks in the world. The question therefore is whether there is sufficient competition between our banks in the provision of current account services.

If you think there is, ask yourself the following question: what in aggregate in a typical year do you pay your bank for your current account? In order to know that you would have to calculate the interest you forgo on credit balances that pay zero or low interest, you would have to calculate the loss to you from money due to you but held in the banks' transmission system, and you would then have to add in overdraft charges, penalty charges, charges for using plastic abroad, charges for exchanging currency and so on.

Unless you can answer that question, and I will bet that most of you can't, how on earth can you shop around for a better service? Without greater clarity about what we pay our banks, genuine competition that would benefit us all will never flourish.

However, there is no need to hold all your money in a current account. By simply transferring any savings that you do not need for day-to-day living into an offshore notice account, you could benefit in several ways:

·         7 Day notice accounts pay interest rates of up to 5.3% in US Dollars and 5.7% in Sterling; probably 10 times more than you are receiving from you current account!

·         If you move the money outside the UAE, you are mitigating the nightmare your loved ones would have to endure should you die – did you realise that any money in the UAE will be ‘frozen’ until probate is granted in your home country, this has been translated into Arabic, and this has been accepted by a court in the UAE. As I am sure you can imagine, this would be very stressful and prolonged at the best of times yet alone when your partner has just died and you cannot access your money to cover living costs.

·         As there are no credit cards, debit cards or cheque books attached to the account, administrative costs are low for the bank which means there are substantially lower charges.

·         Once you have one account, it is easy to set up notice accounts in other currencies – allowing you to switch money between currencies when in your favour.

·         Longer notice period can also be chosen to increase the interest rates even further.

If you are interested in establishing an offshore notice account, just click the ‘contact us’ button below and provide us with an indication of how much you wish to save, how many days notice you can give to access the money and the currency in which you wish to save. One of our fully qualified consultants will then contact you with details of a suitable account.