How To Turn £1 Into £31 Overnight!


Updated on 16 December 2008 | 0 Comments

What? Wham. Lights off. Just like that, you could find yourself £30 poorer if you're not careful. Find out what your nasty bank is up to and how you can profit by it.

Some days, when nasty stuff happens, you have to decide whether to accept it calmly or to have a rant about it. This time I'm doing both. I've already had a private rant and now I'm going to write about it calmly, and pass on some suggestions for how to deal with it.

By now we all now about unlawful bank charges, right? Well, I've just received the figures from independent researcher Moneyfacts that shows precisely how raw the deal is that we get on our current accounts, as five out of the ten biggest banks charge at least £20 for going just £1 over the overdraft limit for one day.

We also find ourselves at a turning point in the industry, but it's not a u-turn, unfortunately. It's just a slight twist so that banks can make as much money as possible from these charges before the OFT or another body clamps down on them. (So it's more of a chicane.)

That won't be the end of it though. You can already see signs of where the banks are going to expand their profits to make up for this, with Clydesdale Bank, HSBC, Lloyds TSB, NatWest, Royal Bank of Scotland, Smile and Yorkshire Bank all increasing their authorised overdraft rates by as much as 2%.

Charges and interest for going £1 overdrawn for one day

Fee

Interest

Lloyds TSB (wef 1.11)

£30

29.80%

Halifax

£28

28.80%

NatWest

£28

29.69%

Royal Bank of Scotland

£28

Nil

Abbey

£20

Nil

Woolwich

Nil

27.50%

Barclays

Nil

27.50%

Nationwide

Nil

24.90%

HSBC

Nil

15.90%

Alliance & Leicester

Nil

Nil




Source: Moneyfacts

Banks are taking other measures too. Lloyds TSB, for example, is just about to remove it's fee-free buffer. In case you've missed any changes to your small print, here's a comparison of ten banks' key charges, buffers and interest rates:

Institution

AuthorisedOverdraft (EAR)

Unauth-orisedOverdraft (EAR)

Unauth-orisedPenalty Fee

Paid
Referral
Fee

Paid
Referral
Refund

Buffers

Abbey

Current Account (Debit Option)

9.9% APR *

28.7% APR

£20pm

£30 per item

1st fee refunded
every 6 months if
no charges incurred
in last 6 months

£50 interest free

Alliance & Leicester

Premier Direct Current

5.9% *

5.9%

£25,

Maximum £50 per month

£25 per item

N/A

£5 interest & fee free

Barclays

Bank Account (Option A)

15.6% *

27.5%

Nil

£30 per item

Maximum of 1 per day, 3 per monthly charging period

Refunded if first fee charged in a 12 month period

£25 fee free

Halifax

Current

(£1K per month funding)

13.9%

28.8%

£28 per month

£30,

Maximum 3 per day

N/A

Interest & fee free
for 120 days on balances up to
£2.5K (Transferred account only)

HSBC

Bank Account Plus

12.8%

15.9%

Nil

£25,

Maximum 5 per month

Waived if 1st
unauthorised over-
draft in last 6
months, agreed
o/d exceeded by
less than £10; unauthorised
o/d no more
than £50 for
total period
of 14 days.

£50 fee free buffer

Lloyds TSB

Classic Plus

18.0%

29.8%

£30 per day

Max £90 per month

£30 per day

Max £90 per month

N/A

Nil (w.e.f. 1.11.06)

Nationwide BS

Flex Account

7.75%

24.9%

£20 per month

£21.50 per item

N/A

£30 fee free

Natwest

Current Plus

Tiered Rates:

£1 - 18.86%
£1K - 17.95%
£5K - 15.93%

29.69%

£28 per month

£30 per item, Max £90 per charging period

N/A

£100 interest free

Royal Bank of Scotland

IPCA

Tiered Rates:

£1 - 18.7%
£1K - 17.8%
£5K - 15.8%

29.84%

£28 per month

£30 per item

Max £90 per month

N/A

£100 interest free

Woolwich

Current

15.6%

27.5%

£3 per day

£30 per item

N/A

£50 fee free



Source: Moneyfacts

As you can see from this table, the unauthorised overdraft penalties can be higher still if the bank charges you for not bouncing the cheque or direct debit which caused the excess.

To handle these penalty charges, you should:

  1. Avoid them altogether by getting to grips with your finances. See our budgeting tips in Your Guide To Easy Money! and visit our Dealing with Debt discussion board, my favourite debt resource on the Web.

  2. If you foresee problems, speak with your bank as soon as possible. If you can, arrange an emergency overdraft facility.

  3. If you're charged a penalty, complain! It's not unheard of to get a one-off refund over the phone, albeit with some grumbling on the other end.

  4. If complaining doesn't work, make a claim. It is unlawful for banks to penalise you for going over your overdraft limit. Read The Ultimate Guide To Reclaiming Bank And Card Charges.

  5. Vote with your feet! This is where you can say that you've had enough of your nasty bank. You've been lounging on it's poor interest rates for ages, but this is just the motivation you needed to move your account and profit by it: compare current accounts and switch to a better deal.

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