Barclays to launch new overdraft service
From next week, Barclays’ current £35+ 27.5% charge for customers who exceed their overdraft limit will be scrapped, with a personal reserve of between £150 and £1,500 put in place on top of their overdraft limit.
Should customers be forced to dip into their personal reserve they will be charged just £22 and be able to make unlimited transactions for a further five days without incurring further charges. Those customers who exceed their personal reserve limit will be charged £8 for each excess payment.
All eligible current account users have been sent letters in regards to the new system, with the option to opt out. According to Barclays, approximatel 90% of its customers have decided to stay with the new scheme.
Andrew Hagger, a spokesperson for Moneynet, welcomed the changes. "Five days should be sufficient for the majority of people to return their account to order or contact the bank to discuss the possibility of a temporary overdraft increase. The deal is fairer and a big improvement on the previous charging structure."
Research by Moneynet found that Barclays will be the cheapest bank for customers making an unauthorised overdraft of £200 for five days. Its charge of £22 is lower than HSBC’s £25.52, Nationwide’s £42.18, Abbey’s £60.78 and Lloyds’ £115.53.
But Kevin Mountford, head of savings and current accounts at moneysupermarket.com, is not convinced: "The Personal Reserve isn't as clear as Barclays makes out, indeed it has had to set up a video blog just to help explain it to customers,” he said. “The truth of the matter is that if overdraft charges were lower banks wouldn't need to resort to confusing ‘reserves’ and ‘buffer zones’ to try and make the charges more palatable.”
Disagreeing with Mountford, Hagger believes that although Barclays’ new structure is attracting some unfair criticism surrounding a lack of transparency, the deal is still fairer and a big improvement on the previous charging structure.
Court case continues
Britain’s high street banks are currently involved in an ongoing court case with the Office of Fair Trading (OFT), which is investigating unfair overdraft fees. According to the regulator, unauthorised overdraft charges provide banks with around £2.6 billion in annual revenue, but earlier this week the OFT sent letters to UK banks, stating that charges in excess of £30 to customers who exceed their overdraft limits are unfair.
Since the end of 2005, thousands of people have successfully reclaimed hundreds of millions of pounds in fees. However, banks have been allowed to stall the repayment of claims until the end of the ongoing court battle
thanks to the bank charges waiver that was granted by the Financial Services Authority.
It is believed that the entire case may not be resolved until late 2009.
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.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
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.