Money

Santander launches 'fee-free' bank account

Zero current account, which will not charge customers for going overdrawn without permission, is unveiled days before a ruling on unauthorised bank charges is expected


Santander, the banking group which includes Abbey, Bradford & Bingley and Alliance & Leicester, today announced plans to launch a current account which doesn't charge fees when customers go overdrawn.

The Santander Zero current account, which will be available from January, will levy no charges regardless of whether the account holder agrees an overdraft limit or goes overdrawn without authorisation.


Customers will pay an interest rate of 12.9% on any borrowing – the cheapest overdraft rate on the market – and will not be charged foreign exchange fees or for using ATMs overseas.


In addition, customers who credit their account with at least £1,000 a month will be able to earn 6% gross interest on credit balances for one year.

However, to qualify for the account a customer must have, or be applying for, a mortgage with Santander. Existing customers with Abbey and Bradford & Bingley, which are to be rebranded under the Santander banner in January, will also be eligible for the deal, while Alliance & Leicester mortgage customers will qualify later on in 2010 when that bank is also rebranded.


The offer reflects a growing trend towards lenders offering tied deals. Last month, Nationwide Building Society launched mortgages available only to its current account customers.


Santander's announcement comes days before the ruling on a court case about overdraft charges is published by the supreme court. The case was brought by the Office of Fair Trading (OFT) against eight high street banks to determine whether it could legitimately rule on the fairness of bank account charges.


If the OFT wins it is expected to rule that banks have levied disproportionate charges on those with unauthorised overdrafts, opening the way for compensation for about 1.5 million account holders who have already lodged claims with their banks.



Court ruling denial

But Vim Maru, director of retail products for Santander UK, denied the account was being launched in reaction to the anticipated ruling and claimed the group, which has 2 million mortgage customers, wanted to offer better value to loyal customers who take out more than one product.


"We want to do more business with our customers and to have a primary banking relationship with them. The more business they do with us the better value we can give them," he said.


"We will, of course, continue to offer great deals for new customers, but the greatest opportunity lies with our ability to do more business with our existing base of 25 million customers."


Maru said the fact that the Zero account doesn't charge fees did not mean the bank would be lending irresponsibly, and that account holders who held an unauthorised overdraft would receive a letter to advise them of the situation.


Kevin Mountford, head of banking at moneysupermarket.com, said: "Santander has clearly taken heed of broad concerns around charging structures and looked to wipe them all away in one fell swoop."

However, Justin Modray, director of financial website Candidmoney.com, said that while the account was attractive to those applying for one of Abbey's fixed-rate or tracker mortgages, those on its standard variable rate were paying an uncompetitive rate of 4.24% and would be better off switching to a different lender.


"Many of these customers could likely save thousands of pounds by moving to a better rate elsewhere, more than outweighing any bank charges they are likely to incur on their current accounts over the life of their mortgage," Modray said.

"Especially given these charges look set to continue receding, and probably at a faster pace still if the supreme court rules in favour of the OFT next week."


Customers who already have overdrafts with another bank will be able to transfer those debts over to the Zero account, subject to affordability checks. The account will be launched on January 11.