Barclays to 'simplify' overdraft fees

Daily cap on transaction fees and text alert service to be introduced.

Barclays has announced plans to simplify overdraft fees for its current account customers.

The bank has said it will introduce a ‘one per day’ cap on paid and unpaid transaction fees in the coming weeks.

The new cap will replace the current system where a customer can be charged £8 up to five times a day, racking up £40 worth of fees daily.

Barclays says the move will save customers £7 million this year.

The bank is also offering a new text alert service to help customers avoid the £8 charge. This is expected to help save a further £7 million.

The removal of multiple daily fees will apply to all Barclays accounts which levy the charge including its Bank Account, Premier Bank Account, Student Additions Account, Higher Education Account and Graduate Additions Account.

Paid and unpaid transaction fees

A paid transaction fee is a charge applied when a bank honours a guaranteed payment, despite there being insufficient funds in an account. This can happen when a payment is made by card and the bank is unable to check your balance.

An unpaid transaction fee is a charge incurred when the bank has to reject a Direct Debit, standing order or cheque due to insufficient funds in an account.

According to the Financial Conduct Authority, British banks make around £200 million a year from unpaid transaction fees alone.

What other banks charge

So what do other banks charge for paid and unpaid transactions?

Here is a table of unpaid transaction fees that are currently levied by some of the main banks in the UK including Barclays with an unplanned overdraft, ordered by cheapest first.

*Charges vary according to the type of account you go for. The table includes the largest charge any account from that bank levies.

And here are the paid transaction fees on unplanned overdrafts at the same institutions, again cheapest first.

*Charges vary according to the type of account you go for. The table includes the largest charge any account from that bank levies.

**No paid item fees, instead if you're using an unplanned overdraft there is a daily fee.

Paid and unpaid transactions can vary widely between banks and between accounts.

HSBC and First Direct are the only banks not to charge an unpaid transaction fee across all of its accounts. This charge was scrapped recently but the £25 fee for paid transactions remains and can result in a £150 monthly bill.

Santander appears to charge the most overall, with a maximum monthly charge of £150 possible on paid and/or unpaid transactions. However this only applies to its Everyday Account; charges for Santander's 123 Account are much less and with the Choice Account these charges have been scrapped altogether.

Compare current accounts with an overdraft facility

How to avoid overdraft fees

Some accounts are designed to protect you from paying paid and unpaid transaction fees when you use an unplanned overdraft.

The Santander Choice Account for example doesn’t charge for either situation. However, the account costs £10 a month. Read more about in: Santander scraps unarranged overdraft fees on Choice Account.

The Nationwide FlexPlus account also doesn’t charge for paid or unpaid transaction fees, plus it comes with 3% interest on credit balances up to £2,500 and a three month fee-free arranged overdraft. It also comes with travel insurance, mobile phone insurance and breakdown cover. But this account costs £10 a month too.

Another way to avoid fees is to switch to an account with a fee-free overdraft limit that you think you can stick to.

First Direct offers a £250 fee-free overdraft on its 1st Account, while the Barclays Bank Account offers up to £200 when you add on one of its paid for features packs. Elsewhere the Nationwide FlexDirect account offers a 12-month interest-free overdraft.

Banks also have features you can add to an account that can help limit the cost of unplanned overdrafts.

With the NatWest/RBS Select Account you can use an optional free service called Overdraft Control, which rejects payments that would take your account into an unarranged overdraft. And Lloyds offers Control, which costs £10 a month and stops Classic Account customers from accidently using an overdraft.

However, if you find that you are continually using an overdraft you might want to take a look at your budgeting. So why not make use of the lovemoney.com MoneyTrack tool to get a better hold take exactly where your money is going and how to make it stretch further?

Compare current accounts

More on borrowing:

The best money transfer credit cards

Sainsbury's Bank cuts personal loan rates until end of January

Barclaycard launches 30-month 0% balance transfer credit card

Santander launches market-leading 18-month 0% purchase card