Barclays' changes centre on its decision to slash unauthorised borrowing fees from £30 to £8 in August. Barclays is also introducing a 'Personal Reserve' which means a penalty charge will not be levied as soon as a customer exceeds their overdraft limit or goes overdrawn without permission. Instead they will have a buffer that enables them to slip into the red, or exceed their agreed overdraft limit up to a certain amount. This will vary but will typically be £250, and customers will be charged £22 for every five-day period that their reserve is used.
While on the face of it these changes appear good news, most customers stand to lose out. The flip side of reducing overdraft fees is that Barclays is ceasing to pay interest on current accounts in-credit - unless you opt to pay a monthly fee. And the authorised overdraft rate is rising from 15.6% to 17.9%. Therefore anyone who keeps within the agreed terms and conditions of their account, and doesn't exceed their agreed overdraft facility, will be worse off.
Mark Parsons, managing director of current accounts, savings and mortgages at Barclays, said in an interview with our site editor, Clare Francis that customers have welcomed the changes and that demand for the new current accounts with monthly fees is high. Click here to watch Clare's interview with Mark.
Barclays is now offering three current accounts that pay 3% interest on balances in credit and the cheapest is the Plus account which costs £3 per month. The Additions Active account costs £14 a month and includes extra benefits such as free worldwide family travel insurance and RAC breakdown cover, while the Premier Life account is available from £17.50 a month. It includes the benefits of Additions Active as well as personal support and access to a Premier manager.
However, there are other accounts paying higher rates of interest with no monthly fee.
Lloyds TSB has announced that it will pay 6% to customers who open a Classic Plus account before July 13. This preferential rate is payable on balances up to £2,500 for the first 12 months. It then drops to the standard Current Plus rate which is currently 4%. In order to qualify for this account you must pay at least £1,000 a month into your account - Barclays' Plus account has no minimum funding requirement. But even the Lloyds' deal isn't the best on the market, so what else is available?
Leading rates if you're usually in credit
Alliance & Leicester's (A&L) Premier Direct account pays a market leading 8.5% on balances up to £2,500 for the first 12 months and customers are only required to pay £500 into the account. The rate on the Premier Direct account drops to one percentage point below Bank rate after a year, so you would currently receive 4%. And you earn just 0.1% on anything above £2,500. However, this is an online account so is only suitable for those happy to bank over the internet. A&L does offer a branch-based account. Its Premier account pays 1% interest up to £2,500 and 0.1% on anything above that. While the in-credit rate isn't great, customers do receive free European travel insurance and access to the Premier Regular Saver account which pays 12% for one year.
Alternatively, if you want a high in-credit rate Abbey's Preferred In-Credit Rate Current Account pays 8% on balances up to £2,500. As with the A&L Premier Direct, this is a preferential rate for the first year - the account pays 2.5% thereafter. This is also the rate you receive on anything above £2,500. This account will be a more attractive option to some people as it does offer branch access, although at £1,000, the minimum monthly deposit is higher than A&L's.
When it comes to leading interest rates A&L and Abbey do stand out above the competition, but there are others paying decent rates. If you act quickly and take advantage of the current special offer, Lloyds TSB's Classic Plus account is the next best at 6%, but other options include Coventry building society's First account which pays 5.60%. This includes a 0.85 percentage point bonus for the first 12 months and you must deposit at least £1,000 a month into the account. But a big plus on this account is that the high rate of interest is available on balances up to £250,000 - great if you keep a large balance on your current account.
Another good deal for high earners is Cahoot's current account. Cahoot is the online bank owned by Abbey and it pays 3.75% on balances up to £249,999 and 3% on anything above if you are willing to forego a cheque book. If you would prefer a cheque book, you have to accept a slightly lower rate of 3.65%.
It's worth noting that the Barclays' accounts which pay 3% interest, have no upper limit, so you may decide a monthly fee is worth paying if you always keep a large amount in your current account.
Another option that warrants a mention is the High Interest Current Account from Halifax as it pays 5.12% and this is a long-term rate, not just a 12-month introductory offer. The high rate is only available on balances up to £2,500 and there is a minimum monthly deposit of £1,000.
What about if I'm regularly overdrawn?
A&L and Abbey also score well for those who struggle to stay in credit each month. Both the Premier and Premier Direct accounts offer interest free overdrafts for the first 12-months. Thereafter, you pay 50p per day up to a maximum of £5 a month.
Abbey also offers an interest-free overdraft for the first year on its Preferred Overdraft Rate Account: you pay 12.9% thereafter. And Barclays is offering a 12-month interest-free overdraft to new customers. However, if you opt for its free current account, the Barclays Bank account, you will pay a less attractive 17.9% after the first year.
If you only slip into the red by a few hundred pounds each month, the new Barclays Plus account is worth considering as it offers an interest-free overdraft up to £300, although you obviously have to pay a £3 monthly fee for the account. Alternatively, the Coventry First account offers a £250 interest-free overdraft buffer.
Have your say: Are you a Barclays' customer? If so, do you welcome the changes it is making to its current accounts or are you going to be looking for an alternative provider? Perhaps you've recently switched your current account and are with a provider you'd recommend to others. Visit our forum and let us and other members know.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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