Last week Barclays grabbed some headlines by giving its current accounts something of an overhaul – changes included the introduction of ‘personal reserves’ for people that slip into the red, reduced overdraft fees and the abolition of in-credit interest on its standard current accounts.
The story raised the question of whether Barclays – one of seven banks involved in a High Court legal battle over overdraft fees – was backing down over previous claims that such fees are fair.
And some experts dismissed the changes as not only over-hyped but also potentially unfair to customers. Sean Gardner, from MoneyExpert.com, queried whether the saving from not paying the in-credit interest would pay for the reduced bank charges. He also pointed out that although the overdraft fee had been reduced, Barclays would still inflict multiple penalties as opposed to a one-off fee.
And Kevin Mountford, head of current accounts at moneysupermarket.com, said: “The only Barclays' accounts giving a decent in-credit interest rate are still those that have interest-busting monthly fees.”
He added: “This move of Barclays to reduce overdraft charges with the one hand and in-credit interest with the other is a direct result of the work the Office of Fair Trading (OFT) has been doing and something we have been warning about - If overdraft charges are to fall as the OFT wants, consumers will pay somewhere else.”
I have to admit, overdraft fees do not impact on my finances directly as I decided a few years back to pay for a packaged current account that offers an interest-free overdraft. Although I occasionally slip into this overdraft, I have never exceeded it (touch wood).
However, I am concerned about the impact that capping overdraft fees will have on all current account customers. Like Kevin Mountford says, banks are now used to drawing an income through this means and if they are no longer able to do so then we will all have to pay in one way or another.
While I am all for packaged accounts if they suit your circumstances, I also believe that choice is important. According to moneysupermarket.com, the majority of people prefer the current system of free banking plus penalties for people that breach their authorised overdraft allowance.
For those people that never go overdrawn but choose to take advantage of free banking, the risk of being penalised for other people’s mistakes must be extremely frustrating.
But does that mean the OFT should drop the issue and allow banks to charge whatever they feel fit to those that slip into the red without permission? Absolutely not - what a fair fee is, however, remains to be seen.
After all, banks could argue that fees need to be a deterrent to people overspending. And that is the real issue here – yes, accidents do happen and it does seem extremely harsh to hit people with huge fines just for making a small mistake.
But there is a fail-safe way to avoid bank charges forever. By monitoring your spending and ensuring your bank balance is healthy enough to support your spending, there is no real reason why any of us should use our current account to ‘borrow’ money.
If the credit crunch teaches us anything it should be the importance of living within our means.
As Sean Gardner says, arguing what constitutes a fair overdraft fee, overlooks the reason why some people are being charged at all: “If providers and lobbyists continue to argue about fees we may miss an opportunity to educate people and make them realise that sensible spending is an even better way to avoid punitive bank charges."
The problem is our buy now, pay later attitude to spending has created a vicious circle of debt that leaves many of us with bigger outflows than inflows.
This is nothing new, but in the current climate we need to break the habit and think beyond our next purchase.