Current account customers counting cost of using authorised overdrafts
Careful current account customers who borrow money by temporarily dipping into a pre-arranged overdraft have seen their costs shoot up as providers slap on extra fees, research by a financial website has found.
Nearly two-thirds (63%) of standard current accounts now impose a usage fee on a customer if they go into an authorised overdraft, compared with just 22% which did this in July 2008, according to Moneyfacts.co.uk. These standard accounts are not ones which charge a regular fee, such as packaged accounts.
Providers have traditionally charged interest on the amount customers borrowed on their overdraft, but in recent years other fees, such as usage fees, have been introduced. These fees can replace the usual interest rate - or be charged on top of interest.
Moneyfacts calculated that a customer with a main high street bank who goes overdrawn by £300 for 15 days of the month in a row may end up being charged nearly £140 a year in fees for using their authorised overdraft.
This is five times the average cost in 2008, when the yearly charge would have been around £26.
At the same time, customers who fall into an unauthorised overdraft have tended to see their costs reduce, Moneyfacts said.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "Those who have seen their charges rise over the years will be shocked by how much it will now cost to temporarily dip into their authorised overdraft.
"Meanwhile, customers who are less prudent when it comes to arranging an authorised overdraft may find that their fees have shrunk. This is due to some banks putting caps in place to limit total charges as well as reducing the charge itself.
"Banks have been changing their overdraft structures for a more transparent approach, but this shouldn't come at a cost to their customers. Sadly, this appears to be the case, as those who arrange their overdraft are taking on the burden of bank customers who don't plan ahead."
A spokesman for the British Bankers' Association (BBA) said: "Across the board overdraft charges have plummeted by nearly £1 billion in recent years, and a number of products now offer a fee- and interest-free facility within an approved overdraft limit.
"Banks are keen to help customers compare account charges in a variety of ways, from making charges easier to understand to providing useful online calculators and mobile apps. They also itemise charges on bank statements and use text alerts to communicate important account information instantly.
"All the major banks now also make customers' current account information available to them in downloadable spreadsheets through midata. This allows anyone to compare different accounts to ensure they're getting the right deal for their spending habits."