Barclays slashes overdraft fees in current account overhaul

29 May 2008
Barclays is to slash the charges for unauthorised overdrafts on its current account offering, in a move that could set a precedent for lower bank charges.

From 18 August, some Barclays’ customers will be able to take advantage of new ‘personal reserves’ that offer a payment safety net if they go overdrawn or exceed their agreed overdraft.

Users will be able to access a personal reserve – normally about £250 – as many times as they want for five working days. A flat fee of £22 applies, but customers will only have to pay for this if they access their personal reserve.

Barclays says personal reserves “significantly reduce charges and give customers certainty about when their payments will be met and when they will be bounced”.

Any customer who exceeds their personal reserve will be charged a fee of £8 per item.

The move follows Barclays and six other banks, plus Nationwide Building Society, appealing against the High Court’s ruling that the Office of Fair Trading has the right to cap overdraft fees if it sees fit.

The banks involved in the test case maintain that current bank charges for unauthorised overdrafts – which can be as high as £35 – are fair to customers.

Andrew Hagger, of financial website, says Barclays’ move could prompt other current account providers to launch “less punitive deals”.

“Hats off to Barclays for taking the initiative for making some radical improvements and for introducing increased transparency,” he says. "Let’s hope this is just the start and that other financial institutions respond with equally competitive and less punitive deals.”

Barclays has also announced a revamp of its current account range, which includes the launch of free ‘no frills’ standard accounts, those that offer additional features such as interest-free overdrafts in return for a £3 nominal monthly fee, and premier packaged accounts that cost up to £25 a month.

Mark Parsons, managing director of current accounts at Barclays, says the range of new accounts should suit all customers, from those that expect free banking without overdraft facilities to those that are happy to pay a fee.

"Increasingly we are finding that many customers are attracted by the extra benefits and services that are available on fee paying accounts,” he adds. “It is a matter of individual choice.”

A part of the revamp, Barclays will scrap the credit interest of 0.1% on standard current accounts as it says this feature is only worth 2p a week to the customer.

However, customers will see their authorised overdraft rate increase from 15.6% to 17.9% from 2 June.

Hagger adds: “It is definitely a move in the right direction to see that customers will be given the flexibility of a ‘personal reserve’ facility.

“This is a vast improvement on some other high street accounts where you are subject to an unauthorised fee of up to £28 plus additional interest and/or charges of up to £20 per day.”

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