Free banking 'myth' to be probed

The Office of Fair Trading (OFT) said its market study would examine the transparency and value of the service customers currently receive from their account provider.

It will sit alongside the watchdogs' existing probe into unauthorised overdraft and bounced payment fees - with a report expected by the end of the year.

Customers have been seeing charges of up to £39 for going over their agreed overdraft limit - a price that campaigners claim is disproportionate, unfair and potentially unlawful.

The OFT has said that it shares public concern over the level and incidence of penalty fees, but is not prepared to make a quick fix solution that could be detrimental to consumers as a whole.

It comes amid fears that forcing down fees could mark an end of "free" banking and the emergence of charges on customers for simply opening or having a current account.

The watchdog said the wider study will examine the provision of so-called free banking to see if customers are getting a fair deal from their banks.

John Fingleton, chief executive of the OFT, said: "This market study will enable us to consider wider questions about transparency and value in the provision of personal current accounts. This will provide the necessary context for assessing the fairness of unauthorised overdraft and returned item charges before we apply the law in this area."

Responding to the announcement, Emma Bandey - personal finance campaigner at Which? - said: "Banks could save a lot of time, money and effort if they just opened up their books and showed us how they work out their charges. Prove to us you are being fair."

She added: "We hope that this study is not surrounded by endless spin from the banks claiming a reduction in charges will spell the end of so called 'free' banking. Free banking is a myth. We are paying for our current accounts but just not in an upfront fee."