Will you pay more thanks to Barclays' 'simplified' overdraft charges?

Barclays has “simplified” its overdraft charges – but will it end up costing you more?

Barclays has overhauled the way it charges current account customers for being in the red. From 16th June it will charge a daily fee for being overdrawn, rather than charging interest.

The bank says it’s introducing the changes to “improve transparency and customer control”, but the changes could mean some pay more for borrowing.

The new charging structure

Firstly, Barclays will introduce a £15 buffer for all overdrafts, meaning you won't be charged until your account balance is more than £15 in the red.

But the big change is that Barclays will start charging a daily fee on overdrafts rather than interest. The following table shows how much you will be charged:

Emergency borrowing – otherwise known as an unauthorised overdraft – will be charged at £5 a day up to £35 a month.

Customers with interest-free overdrafts will only be charged fees if they go over their agreed limit. However, they’ll be charged on the total amount they end up borrowing. For example, if you have a £1,000 fee-free overdraft and borrow £1,300, you’ll pay £1.50 a day.

Compare current accounts with lovemoney.com

Paid and unpaid transaction fees

'Paid transaction fees' are also changing. Previously you faced up to £40 a day in charges if you didn’t have enough money in your account to pay for something – a direct debit, for example – but it was paid by the bank anyway. Barclays has scrapped these charges.

The charge for unpaid transaction fees, when the bank refuses a transaction due to a lack of funds, will be capped at £8 per day, down from the current maximum of £40 a day.

Barclays says the changes to its overdraft charges will leave 70% of its current account customers better off or facing no difference. It admits that 30% are likely to pay increased charges if they use their overdraft facility regularly.

Regularly in the red? You’ll pay more

Barclays customers who regularly use their overdraft will end up paying a lot more under the new system. Those with smaller overdrafts will see the biggest increase in cost.

Andrew Hagger from financial analyst MoneyComms has looked at the new charges in detail.

He calculated that a £200 Barclays overdraft currently charged at 19.3% costs 10p per day. But from June the charge will be 75p per day which is equivalent to an interest rate of 137%.

Someone overdrawn by £300 on just three days in a month will rack up charges of £27 under the new system, compared to just £5.71 if they were charged interest the old way.

A customer who is £1,200 overdrawn for 10 days a month would end up paying £180 over the course of a year, compared to just £76.14 currently.

However the changes are better news for people without authorised overdrafts or who exceed their overdraft limits.

For example, charges for exceeding your overdraft limit and entering the emergency borrowing reserve will be capped at £35-a-month, compared to the current £110-a-month cap.

Compare current accounts with lovemoney.com

Best current accounts if you’re overdrawn

A number of current accounts offer interest- and fee-free overdrafts.

For example Nationwide's FlexDirect offers a 12-month 0% period on overdrafts. It's also a great option if you're in credit, paying 5% on balances up to £2,500 in the first year.

Santander's 123 and Everyday current accounts come with four-month 0% periods, while Nationwide's FlexPlus comes with a three-month 0% period.

Other accounts worth a look include First Direct's 1st Account, which boasts a £250 interest-free overdraft and Co-operative Bank's Current Account Plus which has a £200 fee-free overdraft.

Compare current accounts with lovemoney.com

Money transfer credit cards

One way to tackle your overdraft is actually to make use of a money transfer credit card. They let you transfer cash from the card into your bank account, getting you out of the red. You then pay off the credit card as usual, with the added bonus that you won't be charged any interest on your balance for a set period of time.

You can currently enjoy a whopping 29 months of 0% interest on money transfers with the MBNA Platinum Credit Card and the Virgin Money MasterCard. For more, check out The best money transfer credit cards.

More on current accounts:

TSB and Lloyds launch new high-interest current accounts

Why comparing current accounts is about to get easier

Where to find the cheapest overdraft