Barclays to launch new overdraft service

15 August 2008
Barclays has announced that it is to replace its existing overdraft charges with a ‘personal reserve’ to help its current account customers who exceed their personal overdraft limit.

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, 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.

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