Arranging Your Overdraft? Read This First!

If you're about to ask for an overdraft extension, first read about the fees you may be charged.

We all know that unauthorised overdrafts can cost us a fortune. If you overshoot your current account overdraft limit without letting your bank know, you can expect to incur some fairly hefty charges.

But what if you arrange it ahead of time? You can see you're going to need an extension to your existing overdraft, you tell your bank well in advance and your bank authorises it. Surely you deserve a gold star, not a slap on the wrist?

Sadly, that's not always how it works. If you bank with HSBC, arranging an extension in advance can still dent your wallet.

What to expect

The HSBC `Fair Fees' policy states that the bank won't charge any fees for agreeing overdraft requests, unless they occur frequently.

And that's the bit you've got to watch out for. If more than one overdraft request is granted in any six month period, you start incurring an arrangement fee for each additional extension.

This fee will usually be £25 (although it will be less if you are only extending it by less than £25).

So if you ask for a £500 overdraft, then decide a couple of weeks later you'd rather it was £600, you will usually be charged £25 for the alteration.

You might never end up using this extra £100 of your overdraft - but you will still have been charged for changing your mind.

Do other banks charge this fee?

Taking a look at the biggest high street contenders, it seems that thankfully, HSBC is in the minority.

Barclays, Lloyds TSB, Natwest and Royal Bank of Scotland all state that if you want to extend your overdraft and they authorise it in advance, no arrangement fee is charged.

In HSBC's defence

Looking at the other side of the story, HSBC does help its customers in a way some other banks do not.

For example, you don't have to pay any fees if you're accidently overdrawn by £10 or less.

This compares pretty favourably with some other high street giants. If you have an unauthorised overdraft of less than £10 with Lloyds TSB, for example, and you don't rectify the situation the very same day, you'll be charged a monthly fee of £15, plus £6 every day (for a maximum of 10 days in a monthly billing period) until you sort it out.

This means being £1 over your limit for ten days could cost you a whopping £75.

By comparison, with HSBC, if you go overdrawn by any amount up to £10 you will not be charged anything at all. If you go overdrawn by £10 to £25, the penalty will be the amount you exceeded your authorised limit by (so for example, if you're £16 over your limit, the penalty will also be £16). For any amount over £25, the charge is always £25.

In this way, current account holders who are in the habit of exceeding their unauthorised overdraft limit will be better off with HSBC than Lloyds TSB. Those who can stick to their agreed limit but want to be able vary this limit whenever it suits them, however, might not be.

But isn't it good to talk?

So when it comes to overdraft fees, HSBC's approach does seem to me more proportionate than some of its rivals.

But I do think the lender could be doing more to encourage its customers to plan ahead, and let HSBC know if they're having difficulties.

If someone's trying to arrange an overdraft extension, it's often an indication that their finances are already stretched.

And if they're forward-thinking enough and honest enough to ask for the extension in advance, shouldn't they get a pat on the back, rather than a kick in the wallet?

More: Is Your Overdraft An Ogre? | The Great Overdraft Sting

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