Free current accounts are in decline, while paid-for accounts are becoming more available, as providers move to encourage consumers to pay for their banking services.
Research into bank accounts carried out by Defaqto, the financial researcher, shows that in-credit current accounts are falling in numbers, with figures down from 65 in May 2009 to 58 today.
Providers used to rely on cross-selling other financial products such as credit cards and home loans in order to make up their losses, but in the wake of the recession, banks are looking at new ways to generate profits.
Experts are expecting this trend to continue, predicting that in as little as five years, free bank accounts may only be offered by new banks looking to attract new customers.
The number of paid bank accounts offering benefits such as annual travel insurance, have risen from 54 to 63 in the last two years. The fees applied to these accounts have also increased, with Barclays and Lloyds TSB now charging an annual rate of £300 to access their premier products.The free banking model has been operating in the UK since the 1980s, allowing customers to deposit and withdraw cash both in-branch and through a network of cash machines, write cheques and use branch facilities without being charged for the privilege.
Current accounts are loss-making products, but bank are able to use them in order to cross-sell other lucrative financial products.
However, in the wake of the financial crisis, banks have been looking into ways of increasing profits made from current accounts. An easy way to raise this extra revenue is to charge a fee for accounts.
Banks have been pushing paid accounts by offering incentives such as discounts on fees and other benefits in an attempted to lure customers in. It is estimated that over a quarter of all current account holders currently have a fee-charging account.
However, these ‘package accounts’ have been criticised by the Financial Services Authority, saying that they charge for extras that “may not benefit” customers.