NatWest has Britain's most expensive overdraft fees
NatWest Bank has been found to have the UK's most expensive authorised overdraft fees, at almost 1,500% - or 15 times - more than the cheapest available through a mainstream bank.
Exclusive research for Moneywise by Moneycomms.co.uk revealed the cost of going overdrawn by £400 for four days a month with a NatWest Select account is a whopping £82.46. It would cost just £5.23 with the First Direct Current Account.
NatWest charges a £6 monthly fee for authorised overdraft usage plus interest at 19.89% EAR. First Direct's charging structure is 15.9% EAR but the first £250 of overdraft used is interest free.
Yorkshire/Clydesdale Bank's Current Account Direct charges £6 a month too but its interest rate is half NatWest's at 9.9% EAR.
Our research shows that as the amount borrowed through an overdraft facility increases to £600 for seven days a month, fees also start to rise. The First Direct account charges £12.81, while NatWest's version costs £99.46.
When the amount overdrawn rises to £1,200 for 10 days a month, the Barclays Bank Account eclipses NatWest Select to become the most expensive for authorised overdraft fees, charging £180 for the facility or 15% of the amount borrowed. That compares to First Direct's £49.66, or 4.1% of the amount borrowed.
Indeed, the research indicates that First Direct is consistently the cheapest current account on the market for overdraft fees.
The largest overdrafts
When an overdraft facility of £2,000 is used for 12 days a month, the Halifax Current Account is the most expensive. It charges £288, or 14% of the amount borrowed, compared to First Direct's £109.77 (5%).
Andrew Hagger from Moneycomms.co.uk said: "If you frequently find yourself in the red it's worth shopping around for a competitive overdraft tariff, it's possible to save £75 to £100 per year in some cases so it's definitely worth the time and effort.
"A basic rule of thumb regarding bank accounts at present is that those offering high in-credit rates are often among the most expensive for authorised overdrafts."
He added: "Comparing overdraft charges is very difficult for consumers because of the range of different tariffs on offer - some banks charge interest, some charge daily or monthly fees and some charge both. Banks charging monthly or daily overdraft fees can work out very expensive for those borrowing small sums or only overdrawn for the odd few days here and there."
If you are unhappy with the charges offered by your current account provider you could switch banks - although it is difficult to find out how big an overdraft you could get until you have already successfully applied for a new account.
New switching rules
However, if you do switch, the process has recently been improved. As of 1 April 2015, the Current Account Switch Service, which was launched in September 2013, includes an extended redirection service. This means that any payments accidentally made to the old account are automatically sent to the new account for a period of 36 months – up from 24 months.
Since the launch of the Current Account Switch Service, more than 1.6 million people have moved banks.
An overview of the Current Account Switch Service:
- The switch will be completed in seven working days – a substantial improvement on the previous process that could take between 18 and 30 working days.
- The customer can choose and agree the switch date with their new current account provider.
- All payments going out (e.g. direct debits) and those coming in (e.g. salary) will be moved from the old account to the new account.
- For 36 months after a switch, payments accidentally made to or requested from the old account will be automatically redirected to the new account.
- Customers will receive a refund of interest and charges on their old and new current accounts if anything goes wrong with the switch.
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.