Free Bank Accounts – Is it worth getting one?

Universal access to bank accounts is an age-old ideal. And yet, it still remains to be fully realised. Today, potential applicants for an account are stymied in every way imaginable, from credit checks to highly stressful interrogations, from outright refusals to accept former bankrupts or unemployed to banks offering basic accounts with highly limited banking facilities.

Whichis why the advent of free accounts has been greeted by many as a first step in the right direction by finally making access to the world of banking affordable to all. And yet, free bank accounts are not without their disadvantages either. Here are some of the most important merits and demerits of free bank accounts:

Merits of Free Accounts

  1. No Minimum Deposit: With most free accounts, there are usually no minimum deposit requirements and no usage requirements – whereas, with some other banks, if your account is not active, you risk paying dormancy fees.
  2. Free Bill Paying Services/No transaction fees: Free accounts do not require you to pay for withdrawing money or using their account balance to settle bills.
  3. Free Visa card and security protection: After opening a free account, you will frequently get a free Visa/debit card. This can be convenient for ATM withdrawals and transactions outside the bank.

Demerits of Free Accounts

  1. No Interest on Deposits: One disadvantage of operating free accounts is that your money does not – or hardly – earn interest. Your savings is equal to your deposits minus your withdrawals. Savings accounts and fixed accounts are accounts that do earn interest on ones deposit at a fixed rate, with fixed accounts having a higher interest rate than savings accounts.
  2. Limited Cheques: Free accounts have a limit for writing out cheques. Upon exceeding the cheque writing limit, you’ll have to pay a cheque writing fee.
  3. Cheque fees/ Debit card fees: Not all free accounts are actually free in the real sense of the word. Some free accounts come with hidden costs. For instance, in some free accounts, you pay a small fee for starter cheques. There may also be quite heavy penalties for late or bounced payments, which can quickly add up over time.

image of bank accounts
The latter part especially makes many free accounts seem extremely unattractive on closer inspection. ‘Free’ credit cards are really only intended to lure you into taking on credit at expensive interest rates. Overdraft facilities are really only intended to seduce you into going into the red more often than you should. And then there are all of the small fines and fees mentioned in the fine print, of course. All in all, you may be better of paying for an account which, however, offer you complete transparency and no additional costs.

Provided by basic bank institutions, the market for these accounts has considerably matured over the past decade and now offers an excellent alternative to the traditional banking system. And since anyone is free to apply for one, including bankrupts and unemployed, they may actually be closer to the ideal of universal access to banking than most of the supposedly free accounts.

This article was written by William Masters. Liverpool-born Masters is a personal banking and online finance systems expert, currently living in and reporting from London.

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