Barclays ups overdraft costs but simplifies charges
In a move designed to simplify its charging structure, from June the bank will also cap daily charges customers can incur: from £62 plus overdraft interest, to £8. It will also limit the number of unpaid transactions they can be charged for to one a day and will remove paid transaction fees altogether.
In a statement, a spokesperson for Barclays said: "Customers will receive information on the changes to the way they will be charged, together with how to set up a range of alerts and supporting tools. These are in place to make the costs clear and to help customers to avoid fees."
However, money expert Andrew Hagger of Moneycomms.co.uk, has warned customers to watch out for what are actually more expensive overdraft charges for many people.
He said: "I'm sure customers will find the charges easier to understand but I'm sure they'll be far from pleased when they realise how much extra they will have to stump up for using an agreed overdraft."
He gave the following examples of the increase in cost. A £200 overdraft at 19.3% currently costs 10p per day, but from June the charge will be 75p per day, which he pointed out is equivalent to an interest rate of 137%.
A £500 overdraft at 19.3% costs 26p per day, while from June the charge will again be 75p per day – an effective interest rate of 55%.
He added that someone who was previously been £500 overdrawn for seven days each month would have paid £22.21 a year in authorised overdraft interest with daily fees of 75p, but come June the annual cost will rise to £63.
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.