by Caroline Garlick

Created on: October 26, 2008

Nothing is free. It's easy to believe something is free if you don't see a specific charge applied for a product or service. Your bank account could be free, to you, individually, for as long as you maintain a credit balance, or refrain from using or exceeding an agreed overdraft. If you're one of the lucky few who can manage this (and in today's climate, I'm sure I'm not alone in admitting I'm not!), you will not incur debit interest or overdraft fees. Well done you. However, this does not make your banking free. That's because you're not the only customer your bank has to manage.

Take, as an example, a bank with one million customers. Let's say five hundred thousand of them manage their accounts as above; never using or exceeding an overdraft and maintaining a credit balance. A further four hundred and fifty thousand may use and sometimes exceed their overdraft. These customers are charged debit interest, and the occassional fee, which, contrary to popular belief, is justified and covers the costs incurred by the bank for lending the customer this excess. And finally, in this example, there's fifty thousand customers who regularly exceed agreed overdrafts, miss repayments and fail to manage their accounts.

These are simplistic figures for the purpose of this example, so forgive me for being glib. Of these hypothetical fifty thousand, many will avoid payment of their debt. This may be by filing for bankruptcy or declaring hardship; it may be due to simple procrastination - refusal to pay the fees applied; it could even be a result of the recent bandwagon, exacerbated by the media, where many feel they are somehow entitled to demand backdated fees and interest from their bank. Ultimately though, no matter how the individual may try to justify their reasons for this, it does cause the bank to lose money.

So the bank has to balance their books. How can they do this? By increasing charges elsewhere, or applying fees to services which otherwise they could have offered free of charge. If you want copies of past statements, there's a charge. If you need to stop a cheque, you have to pay for it. Going on holiday? It'll cost you to use your card abroad, or purchase foreign currency. Even a reduction in interest rates on your savings can be indirectly caused by other people's mismanagement of their finances.

So as a result, even those lucky few will pay, somewhere down the line.

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