Banks’ overdraft fees round-up
There are many different reasons for choosing a current account but if you are concerned about going overdrawn and don’t want to be hit with a penalty then investigating banks’ policies on overdraft charges is a good idea.
When looking a different bank accounts there are three overdraft related penalties to take into consideration. Firstly, the one-off fee for going overdrawn without permission when the bank allows the payment (known as the overdraft fee) and secondly the charge for bounced payments that are refused by the bank. Finally, you should consider the Equivalent Annual Rate (EAR) which is the amount of interest you will be charged on your overdraft over a one-year period.
Most banks and building societies charge a monthly fee if you go overdrawn.
Abbey’s current account has a tiered fee system based on the amount by which you are overdrawn. If you are overdrawn by £9.99 or less then you will have to pay a £5 fee. However, if you are over £30 overdrawn then this fee will increase to £35. Abbey’s interest rate on unauthorised overdrafts is 28.7% EAR.
Halifax’s Moneyback account has a £28 monthly penalty for going overdrawn. You will also be charged 28.8% EAR on the amount you are overdrawn for doing so, making this an expensive way to borrow. Bounced payments will also set you back £35 per item.
Intelligent Finance, which like Halifax is part of the HBOS group, also has a £28 overdraft fee on its current account. However, you only have to pay this if you go overdrawn more than once in a month for more than 24 hours. IF’s EAR on overdrafts is 25.25% and it also charges £30 for bounced payments.
The overdraft fee on Norwich & Peterborough Building Society's Gold Current Account is slightly cheaper at £23 a month and its overdraft EAR is 24.9%. A bounced payment will set you back £29.50.
Nationwide’s FlexAccount has an unauthorised overdraft penalty of £20 and an EAR of 24.9%. Its bounced payment charge is £21.59.
HSBC has what it calls a “fair fees policy” on its current accounts. This means that if you are overdrawn by less than £10 you will not face any fee. If you go overdrawn by more than this amount but the funds are repaid within the same day, again you will not have to pay a fee. But in all other cases you will be charged a fee equal to amount you have gone overdrawn by.
This means that if you are only £15 overdrawn you will pay £15. But if you go into the red by a larger amount then your fee will equal this.
One of the steepest overdraft fees is from Barclays. All its current accounts face a 27.5% EAR on unauthorised overdraft usage and a “Paid Referral Fee” of £30 per day if you are more than £5 overdrawn. This fee is, however, capped at £90 a month.
Lloyd’s TSB charges its customers a £15 monthly fee for going overdrawn without permission as well as a variable daily fee. If you have gone into the red by less than £25 then this daily fee will be £6, increasing to £15 a day if you between £25 - £100 overdrawn. If you are more than £100 overdrawn then this fee will increase to £20 a day.
This means that if you were more than £100 overdrawn for a full 31-day month then you would pay £635 in penalty fees.
Of course, the best way to avoid having to stump up for overdraft fees is simply not to go overdrawn in the first place. For the best ways to avoid getting into the red, click here.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.