In the UK there is a gap between the perception that banking is ‘free’ and the reality. Banks that offer so-called free accounts cover the cost of running them with high penalty charges and hidden fees. So it’s often the most financially vulnerable customers that pay the price for this ‘free banking’. Which in our minds, is an unjust and questionable practice.
To this end the UK Financial Conduct Authority (FCA) has been working for a number of years to ‘radically reform’ the ways banks and building societies charge for overdrafts. The 2018 FCA's High Cost Credit review showed banks made a huge 2.4 billion a year from overdraft fees. Banks have been asked to stop confusing consumers by hiding their excessive fees. Triodos was one of the voices challenging the status quo and calling for change.
True to our values of transparency, Triodos has made a point of being upfront about the true cost of running a current account and the way we apply fees and charges. All our current account customers share the cost of running the account equally and pay a flat £3 monthly management fee for the service they receive: including online banking, ATM withdrawals, unlimited money transfers, an eco-friendly contactless debit card, cheque books on request, a friendly UK-based customer service team, and all the essential banking services you’d expect.
On overdrafts, new regulation has now made it easier to compare costs between banks, and the problem around unarranged overdraft fees has improved, but this year many banks have taken the easy option and simply shifted the cost of banking by increasing agreed overdraft rates to almost 40% EAR in many cases (for more on this we have a comment piece from personal finance expert and industry commentator Andrew Hagger). Importantly, the monthly fee has enabled Triodos to leave our overdraft rate at 18% which is much more proportionate to what it costs.
The reality is that there is no such thing as free banking – it’s simply a myth that we have come to believe is true here in the UK. Charging for a current account is normal in continental Europe and the US. Banking is a service and that service costs money, whether it’s the physical cost of manufacturing debit cards, the development costs of a banking app or administration costs to service an account. By charging people transparently, we have challenged the common practice of high street banks and contributed towards the debate about how banks earn their money, as well as what fairer fees and charges look like.
Look at it this way: just as organic food represents the ‘true cost’ of food production, we’re being transparent about the true cost of running a current account (though in truth, at our current size the monthly fee doesn’t fully cover our costs to run an account).
The idea banks can offer ‘free’ account services, while generating large profits by charging often financially vulnerable customers excessive charges, doesn’t seem right or fair to us. No other bank in the UK has been bold enough to say this as we have done. Launching with this approach to charging was a bold move at the time, but the rest of the banking world now appears to be waking up to the need for transparency and fairness. Our initial stance is partly why the Daily Telegraph named us ‘Britain’s first honest bank’. It’s a title we’re very proud of.
We think it’s time that banks start to act responsibly and in the long-term interests of their customers – both in terms of their fair treatment and in ensuring they are lending customers’ money in a way that creates a fair and more sustainable future.
The Triodos Current Account
Our mission at Triodos Bank is to make money work for positive social, environmental and cultural change. Where you choose to put your money, and how your bank uses your deposits, can reflect your values and we only lend money to organisations and projects that are making a positive difference to society.
We’re the only 100% transparent bank – publishing details of every organisation we lend to, and invest in, so you know exactly where your money goes. That’s why Ethical Consumer, the UK’s leading ethical and environmental magazine, has rated the Triodos Current Account as having the highest ethical and environmental standards of any current account available in the UK.