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 | Paid | Buffers |
|---|---|---|---|---|---|---|
Abbey Current Account (Debit Option) | 9.9% APR * | 28.7% APR | £20pm | £30 per item | 1st fee refunded | £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 |
HSBC Bank Account Plus | 12.8% | 15.9% | Nil | £25, Maximum 5 per month | Waived if 1st | £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% | 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% | 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:
- 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.
- If you foresee problems, speak with your bank as soon as possible. If you can, arrange an emergency overdraft facility.
- 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.
- 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.
- 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.