2.5 million use unauthorised overdrafts
Around 2.5 million Brits have racked up high penalties and charges due to unauthorised overdraft fees in the past year, a new survey has revealed.
Some 57% did so because they run out of money every month, while 54% blamed having no savings and a third said they have no other option but to use an unauthorised overdraft, according to the research conducted by Which?.
More than two-thirds (68%) of those who used an unauthorised overdraft said they feel the charges for doing so were too high or unfair, while 36% were surprised by the amount they were charged.
The wide-range of different charging structures used by banks is making it difficult for consumers to make a proper comparison between current accounts, leaving them unable to make the best choice for their needs, the research found.
Meanwhile, the lack of transparency over charges makes it difficult for customers to calculate how much they will pay, added Which?.
Which? executive director, Richard Lloyd said: "Consumers are fed up of being hit by complex and costly charges which make it almost impossible for them to shop around for the best deal for their needs.
"We want all banks and current account providers to Stop Sneaky Fees and Charges and put an end to excessive, unclear and hard to compare unauthorised overdraft fees that could leave consumers paying over the odds."
Some progress is being made. HSBC and its sister online bank First Direct have simplified their unauthorised overdraft charges. From November, customers will pay £5 a day if they go over their limit up to a maximum of £80 in one monthly charging period. This replaces its old charging structure that saw customers pay a £25 set-up fee each time they used their unauthorised overdraft.
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.