According to a recent report in the Sunday Times, Richard Branson hopes to enter the banking sector by buying up some of the RBS branches that the European Commissions is making it sell off, because of the government subsidy it has received.

Actually, it looks as if the sale of some 320 former Williams & Glyn’s branches may be grinding to a halt, because the purchaser is going to have to stump up money to cover a £3billion funding gap. Apparently the branches involved are dependent on emergency funding from the Bank of England. The loans, part of the package of aid extended to RBS under the Special Liquidity Scheme, will quickly have to be replaced by the new buyer. In addition at least £2 billion of capital will also be required to support current lending.

The “end of free banking”
What really grabbed my attention, however, was that the new Virgin Bank says it will be charging for all accounts, irrespective of the level of monthly deposits and without offering any special benefits, in return. According to Virgin, everyone knows that there is ‘no such thing as free banking’ and that banks make their money by hidden charges on overdrafts and so on.

Virgin says it is being transparent about its charges; what it is really doing in making a virtue of necessity. It cannot make money without levying charges, so it says they are a good thing for everyone. But in fact the vast majority of bank customers probably never pay these charges, anyway.

One could argue that if we simply avoid Virgin, we will not have to pay the charges; but it is not operating in a vacuum. Three years ago, First Direct introduced a £10 monthly charge for current accounts and other banks have been quietly introducing so-called ‘premium’ accounts that carry charges in return for add-ons, most of which many customers may never use. According to one source, these accounts now represent about half the number of current accounts; a tribute to aggressive marketing rather than any inherent value in them.

Is Virgin good for businesses?
Over the years, Virgin has entered a number of business sectors including insurance and music. In each case it has promised something new but, in general, it has simply caused problems for the existing participants. Of course, competition is often healthy; insurance companies in particular had become complacent and a bit of a shake-up can be helpful. But whether consumers benefit in the longer term is open to question.

What of the future?
If Virgin succeeds in getting off the ground only offering accounts that charge you to keep your money, it is only a matter of time before greedy bank bosses realise that they can do it too and free banking really will disappear.

It would be a sad day for the vast majority of consumers and a great one for the bonuses of Sir Fred Goodwin’s successors.

Getting advice
As ever, when it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.