Overdrawn £1 for 1 day – how much will this cost you? Moneyfacts.co.uk investigates
Lisa Taylor, analyst at moneyfacts.co.uk, takes a look at how fairly customers are treated by their bank if they miscalculate and use an unauthorised overdraft.
“Following the OFTs ‘success’ at reducing credit card default fees, they are now in the process of focusing their attention on similar penalty fees within the industry, with its next target set to be current accounts. But if the credit card market is anything to go by, this lost revenue will not be taken lying down, with providers searching for alternative methods to recoup this income.
“Already Lloyds TSB has announced changes to its overdraft tariff on selected accounts, removing the buffer and changing the terms of its default charges. On top of this, during 2006 we have already seen Royal Bank of Scotland, NatWest, Lloyds TSB, HSBC, Yorkshire Bank, Clydesdale Bank and Smile all increase their authorised overdraft rates by as much 2%.
“While it can not be disputed that current account fees look excessive, the problem is made worse by the lack of transparency caused by the complex terms, conditions, waivers and by every provider charging in a slightly different way.
“Take the example of a consumer who as a one off, miscalculates and slips an into unauthorised overdraft by £1 for 1 day, the table below shows how differently the banks treat their customers. At worst this mistake could cost over £30, whereas at the other end of the scale, some lenders wouldn’t levy a fee for such a minor customer error.
|
Fee |
Interest |
Lloyds TSB (wef 1.11) |
£30 |
29.80% |
Halifax |
£28 |
28.80% |
NatWest |
£28 |
29.69% |
Royal Bank of Scotland |
£28 |
Nil |
Abbey |
£20 |
Nil |
Woolwich |
Nil |
27.50% |
Barclays |
Nil |
27.50% |
Nationwide |
Nil |
24.90% |
HSBC |
Nil |
15.90% |
Alliance & Leicester |
Nil |
Nil |
Source: www.moneyfacts.co.uk Figures correct at 24.10.06
“What’s worse is that these charges can be the same regardless of the amount you are overdrawn by, and can be worse still, if the bank also charges a ‘paid referral fee’ for not bouncing the cheque or direct debit that caused the excess.
“Loyal customers, can be great revenue earners for banks, with opportunity to cross sell other products and services. But when automated systems take control, and minor errors are punished so harshly, the customer/bank relationship in many cases will never be the same.
“Of course customers can complain and may be lucky enough to get their charge refunded, but the damage to the relationship is already done. With the perceived hassle of switching current account providers often seen as a deterrent, dissatisfaction with service is a much bigger driver for lost business than the a poorly priced product.
“To avoid these charges, always speak with your bank as soon as you foresee a problem arising, and if possible have an ‘in case of need’ overdraft facility in place, so at least you won’t be so severely punished for those ‘emergency’ or unforeseen moments.
“While it is welcome that the OFT has identified the issue and intends to resolve some of the flaws surrounding current account penalty fees it should at the same time, be mindful of the potential consequences. The end of free banking for example will affect many more consumers, than those currently impacted by the unfair default charges.“
Institution |
Authorised Overdraft (EAR) |
Unauthorised Overdraft (EAR) |
Unauthorised Penalty Fee |
Paid Referral Fee |
Paid Referral Refund |
Buffers |
AbbeyCurrent Account (Debit Option) |
9.9% APR * |
28.7% APR |
£20pm |
£30 per item |
1st fee refunded every 6 months if no charges incurred in last 6 months |
£50 interest free |
Alliance & Leicester |
5.9% * |
5.9% |
£25, |
£25 per item |
N/A |
£5 interest & fee free |
Barclays |
15.6% * |
27.5% |
Nil |
£30 per item |
Refunded if first fee charged in a 12 month period |
£25 fee free |
HalifaxCurrent |
13.9% |
28.8% |
£28 per month |
£30, |
N/A |
Interest & fee free for 120 days on balances up to £2.5K (Transferred account only) |
HSBC |
12.8% |
15.9% |
Nil |
£25, |
Waived if 1st unauthorised overdraft in last 6 months, agreed o/d exceeded by less than £10; unauthorised o/d no more than £50 for total period of 14 days. |
£50 fee free buffer |
Lloyds TSB |
18.0% |
29.8% |
£30 per day |
£30 per day |
N/A |
Nil (w.e.f. 1.11.06) |
Nationwide BS |
7.75% |
24.9% |
£20 per month |
£21.50 per item |
N/A |
£30 fee free |
NatwestCurrent Plus |
Tiered Rates: |
29.69% |
£28 per month |
£30 per item, Max £90 per charging period |
N/A |
£100 interest free |
Royal Bank of Scotland |
Tiered Rates: |
29.84% |
£28 per month |
£30 per item |
N/A |
£100 interest free |
WoolwichCurrent |
15.6% |
27.5% |
£3 per day |
£30 per item |
N/A |
£50 fee free |
* 0% introductory offer may apply
NOTES TO EDITORS:
Moneyfacts Group
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