HSBC raises fees for 700,000 business customers

HSBC is not the first bank to withdraw "free banking" services for its business customers

HSBC is to increase its charges for 700,000 small business customers from Sunday, with many losing their free banking service, the BBC has learned.

The bank said the monthly account maintenance fee would rise from £5 to £5.50, with an undisclosed number being charged the fee for the first time.

HSBC said the new fees were part of an overhaul of accounts aimed at providing "clearer, more transparent pricing".

The bank told the BBC it had written to all of the affected customers.

It has also written to charities and community account customers with turnovers of less than £100,000, although these customers will not be affected by the increased charges.

"This will provide customers with clearer, more transparent pricing, making it easier for them to manage their costs," HSBC said.

"For those businesses that are subject to charges, our small business bank accounts remain very competitive."

The bank said that some customers would also see their charges reduced.

Free banking 'myth'

The issue of "free banking" sparked controversy last year.

Santander announced that it would impose a monthly charge of £7.50 to £12.50 on some 230,000 small businesses, despite having previously marketed the accounts as "free banking forever", but later dropped the plans in the face of anger from many customers.

Earlier in the year, the new chairman of Barclays, Sir David Walker, claimed that the difficulty banks face in charging for current accounts was what drove them to less transparent ways of making money, such as mis-selling products such as payment protection insurance (PPI).

Providing "free" current accounts has become markedly less profitable for High Street lenders since the Bank of England cut interest rates to their current historically low rate of 0.5% in March 2009.

This cut the income that banks earned on mortgages and other loans linked to the Bank of England rate. Yet the banks have not been able to pass the cuts on to current accounts that were already paying a zero interest rate, thereby eroding their profit margins.

However, others have claimed that the entire concept of free banking is a "myth", including Richard Lloyd, executive director of consumer group Which? and Andrew Bailey of the Bank of England.

They claim that banks earn money from current accounts by paying no interest on them, and by less transparent means, such as by charging high fees and penalties, for instance on unauthorised overdrafts.

HSBC's move towards what it claims is a more transparent system of charges comes as the major banks prepare to make it much easier for customers to switch their bank account providers from 16 September.

The new free switching service, being introduced under pressure from regulators, will allow switches to be complete within seven working days.

At present, it can take up to 30 days for customers to switch banks.