Watch out for these stealth fees

Banks are sneakily raising their fees on a range of financial products and services. Find out what you need to watch out for!

As the outcome of the legal case into unauthorised overdraft fees draws to a close, the big banks face a potential payout in the billions.

So it's not surprising that, as they attempt to balance the books, fees on a range of products and services are slowly creeping up.

The majority of price hikes have been concentrated on current accounts and credit cards. If you don't check your monthly statements or the rate of your card - let alone read the small print - you could be paying far more than you need to.  We uncover the worst offenders and examine cheaper alternatives.

Sneaky current account charges

UK consumers may still enjoy free banking but if you occasionally dip into the red you can expect to pay an awful lot more than before - particularly if you bank with Halifax or Bank of Scotland. December will see HBOS scrap overdraft fees and interest charges with account holders instead paying anywhere between £1 and £5 for each day they remain overdrawn.

The bank claims that the new system will reward good behaviour and points out that account holders will receive £5 interest each month as long as £1,000 is paid in each month. There will also be an interest-free 'buffer zone' for the first £10 you are overdrawn. Yet a like-for-like comparison with existing overdraft charges paints a less rosy picture: someone overdrawn by £100 will have to pay a £1 daily charge for the privilege under the new rules.

That's equivalent to 365% AER. The equivalent rate on a typical overdraft from a rival provider is nearer 19%.

Fortunately, there are courses of action open to HBOS customers. The most obvious step is to switch to a best buy current account. If you regularly dip into the red, the Alliance & Leicester Premier Direct account offers a 12 months interest-free overdraft; and if you mostly stay in the black, the same account pays 6% interest on an in-credit balance. Either way, it could make sense to switch.

Those wanting to pay off an overdraft could switch the sum to a 0% credit card, although you will have to pay a small percentage of the overall debt as an upfront fee.

And the stealth fees and charges don't end there. Individual charges for bounced cheque or direct debit payments can still be as high as £30 for each individual transgression, so watch out for those.

Many customers, meanwhile, have also found themselves automatically upgraded to so-called 'premier accounts' that charge a monthly fee in another sneaky move by the banks. Surveys show that these deals often represent poor value for money - so, again, if you're unhappy with your existing arrangements look for a best buy alternative.

Sneaky credit card charges

Credit card holders have also been hit with a range of increased rates and charges - even though interest rates are at an all-time low. Figures from consumer group Which? show that 64% of providers have increased rates and associated charges this year - and are using new European laws on terms and conditions to introduce new stealth charges.

Credit card companies argue that their prices are based on more than just the Bank of England base rate and that their associated costs have soared (even though the Libor inter-bank lending rate is also at an historical low). Even so, that's little comfort to consumers who are now paying rates more associated with store cards than regular plastic - and finding alternatives to switch to a better deal increasingly limited.

According to the Bank of England the average interest rate on a credit card is now 18.13% - the highest rate since records began a decade ago.  Many providers have hiked up their advertised rates - Mint, Nat West, RBS and the Post Office have all hiked their advertised rates by between 3% and 4% - but it's existing cardholders who are suffering the biggest price hikes.

August saw Barclaycard warn that it would raise interest rates to customers who appear to be struggling with their debts. Meanwhile, anecdotal evidence has been emerging that lenders have been issuing customers with ultimatums to pay off their balances or suffer higher pricing.

Many consumers have seen their card rates climb as high as 29.9% - a rate nearer that of a store card. And because these hikes are aimed at existing customers, they still allow banks to advertise low headline rates while enjoying increased profits.

Guidelines state that card firms can increase rates once every six months - so if you're at risk of paying more for your plastic, it could be worth seeking out one of the few 0% credit cards still left on the market.

Cash withdrawal fees and rates have also been slowly creeping up. November 1 will see both First Direct increase the fee for withdrawing funds from a cash machine from 2.5% to 2.99%. This would see someone taking out £200 paying £6 when they would have paid just £2.50 under the old rate - a 20% increase. Asda, Tesco, Ulster Bank and the Debenhams Mastercard have also upped their cash withdrawal rates from 2% to 3%.

Luckily, avoiding these fees is simple - never withdraw cash from a credit card unless you really have to.

And the sneaky tricks don't end there. Balance transfer fees are rising across the board, while providers are also trying to milk more money from overseas card usage. M&S Money has this month hiked its fee for foreign currency transactions from 2.75% to 2.99%, and other lenders are expected to follow suit.

If you travel frequently and want low-cost plastic, it's worth noting that the Santander Zero card doesn't levy any fee for foreign currency transactions.

Get help from lovemoney.com

If you're worried you're paying too much in rip-off fees, make the most of the resources at your disposal here at lovemoney.com.

First, adopt this goal: Pay off credit card debts

Next, watch this video: The biggest financial rip-offs

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for advice?

 Compare credit cards at lovemoney.com