It isn't your money, stop spending it

Borrowers who use their overdrafts responsibly are being penalised by Halifax. But maybe that's the wake-up call people in debt actually need, argues Serena Cowdy.

Last week, it emerged that Halifax plans to dramatically change its overdraft fee structure. In a nutshell, the overdraft interest charges on two of its current accounts will be replaced by flat daily fees.

The amount you'll be charged each day will depend on how big your overdraft is, and whether or not it's been authorised. The main changes will be brought in at the beginning of December.

In Beware of this outrageous bank rip-off, my colleague Jane Baker outlined exactly what accounts are affected, and what level of daily fees you can expect to pay.

Many customers will lose out financially as a result of these changes - but there will be some winners, too. Here, I'm going highlight which category you're likely to fall into.

I'll also examine the best options for those people determined to take their business elsewhere. And I'll show you how to make the best of it if you are forced to stay with Halifax.

Are you a winner or a loser?

First, a brief recap of the new fee structure:

• Anyone with an authorised overdraft up to and including £2,500 will pay £1 a day in overdraft fees under the new system. Customers with overdrafts of over £2,500 will pay £2 a day. These fees will replace the current typical 19.5% interest charge.

• If you exceed your authorised overdraft limit, you'll pay £5 a day. This set-up will replace the current structure, under which you're charged £28 for exceeding your limit, plus a £35 penalty fee per transaction.

• There will be a £10 'buffer zone' for all customers. This means that if you go overdrawn by £10 or less, you won't be charged anything. This 'buffer zone' currently varies from person to person.

In a nutshell, here's how the changes will affect you:

You're a loser if... you have an authorised overdraft, and you regularly go into it by more than £10 (the buffer zone) and less than £1,872. Radio 4's Money Box programme recently calculated that anyone with an overdraft below £1,872 is likely to be adversely affected by the new arrangements.

That's because until your overdraft reaches £1,872, you'll be worse off paying the £1 daily fee than incurring the typical interest charge normally levied on a current account (usually 19.5% APR).

You're a winner if... you regularly stray into an unauthorised overdraft. That £5 daily fee will leave you in a much better position than the huge penalty fees you would previously have paid.

I can see why the unfair nature of these changes has got so many people's backs up. Essentially, the customers acting in the most financially irresponsible way (those swerving into unauthorised overdrafts or borrowing large amounts every month) will benefit from the changes; while people dipping only slightly into their authorised overdrafts will generally end up paying much more.

You still have time to take action

In fairness to Halifax, they've given us all a decent amount of warning. If you think you'll lose out under these changes, you still have time to vote with your feet.

You have just under five weeks to decide what to do - as the new fee structure comes into practice on 6th December.

Accounts with other banks

If you want to show Halifax you mean business, switching providers is the best way to do it.

The Alliance & Leicester Premier Direct current account offers a 0% overdraft facility for the first year. You'll also be handed a £100 bonus if you switch to it before 8th November and pay in at least £500 every month.

After a year, you will start beginning charged 50p a day for any overdraft remaining. On the plus side however, these charges are capped at £5 a month, whereas the Halifax charges are uncapped.

Alternatively, the Abbey Preferred Overdraft rate account also offers a 0% overdraft facility for the first year, and is also offering a £100 bonus if you switch to it before 8th November. However, you will need to pay at least £1,000 every month into this account.

Unfortunately, Abbey was recently voted the worst bank in Britain by lovemoney.com readers, while Alliance & Leicester has also gathered its fair share of complaints. Read Britain's worst bank to find out more.

Staying with Halifax

It's all very well us telling you to take your business elsewhere, but what if you're not able to? If you have a poor credit rating, you may find it impossible to switch to another lender.

If you are forced to stick with Halifax, there are still some steps you can take to minimise the damage.

First, if you currently have a Reward Current Account (everyday account) with Halifax, you could offset the cost of the new charges by switching to its Reward Current Account (reward account) instead. The names are confusing, but they really are two separate options!

You'll still be hit by the £1/£2 daily charges if you go into your overdraft; but as long as you're able to pay in at least £1,000 a month, this account will 'reward you' with a flat £5 every month. Although Halifax will effectively be giving with one hand and taking away with the other, this extra £5 will offset at least some of the overdraft fees you incur.

It's rare that I recommend a packaged current count, but certain Halifax customers unable to leave the lender may benefit from switching to its Ultimate Reward Current Account (packaged account), instead.

This is far from an ideal option, as this account charges a flat monthly fee of £12.50. However, it offers a 0% overdraft up to £300 - so if you're in the red by less than this amount - for more than 12 days in a month - you'll save a bit by paying the £12.50 instead of the £1 daily fees the other accounts charge. 

Was this the wake-up call we needed?

I think this action by Halifax might be a necessary boot up the bottom for many of us. In the bad old days - when I showed scant respect for my finances - I saw my overdraft as money that was there for the spending. The fact that IT WASN'T MINE didn't concern me nearly enough.

Ultimately, many of us need to pay more attention to actually paying off our debts. Once we do, Halifax and the rest of the banking gang will have far less of a hold over us, and far fewer opportunities to profit at our expense.

In the meantime, if you don't like what Halifax has done and you're able to switch switch current account providers, get moving!

As lovemoney.com reader Luniversal commented on our first article about these charges, banks will keep pulling stunts like these because "Mr Ripped Off UK Consumer is so bone idle he changes his bedmate more often than his bank". Harsh but fair? Tell us what you think using the comments box below!

Get help from lovemoney.com

If you need a bit of help getting rid of your overdraft, we can help.

First, adopt this goal: Destroy your debt

Next, watch this video: The Alliance & Leicester Premier account

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

More: Don't pay a packet for a packaged current account | How to choose the right student bank account