How much does your overdraft cost?

Published:
29 November 2010
Topic:
News,Money,Current Accounts

Lloyds TSB is re-vamping its overdraft charges from December 2. Costs will fall for those who exceed their agreed overdraft limits or go overdrawn without permission, but millions of customers who use an authorised overdraft facility will pay more for going into the red.

While the bank is reducing several of its overdraft fees, customers with agreed overdrafts will be worse off, as they will now have to pay a new £5 usage fee every month they go overdrawn, on top of interest at an annual rate of 18.9%.

That means someone who uses their overdraft every month will pay an extra £60 in charges over the year. Customers won't, however, be charged a fee if they go overdrawn by up to £10.

Every cloud...

The good news is that from the same date, Lloyds TSB current account customers using an unauthorised overdraft will be charged a monthly fee of £5, compared to the current fee of £15. Daily fees for unplanned overdrafts, which range from £6 to £20, will also be reduced to between £0 and £10, and the maximum number you can be hit with in any one month will fall from 10 to eight.

Kevin Mountford, head of banking at moneysupermarket.com, said: "It is good to see further initiatives from a major player in the banking industry on overdraft charges and the reduction of fees will certainly help some customers.

"For those who flirt with their overdraft every now again and keep under the £10 limit then the free buffer is helpful. If you go into the red without approval you will now be better off as the unplanned fee is being reduced from £15 to £5, but unfortunately those who go into their authorised overdraft will now pay an additional £5 for the privilege on top of the interest they are already charged.

"As ever, the devil is in the detail and consumers need to ensure they check the small print. It is important when choosing a current account to select one that will suit your needs; otherwise you could end up paying for unnecessary costs."

Best current accounts if you're regularly overdrawn

If you regularly make use of your agreed overdraft, then the Lloyds TSB account may not be your best bet. One of the most competitive accounts if you tend to dip into the red most months is the Santander Preferred Overdraft rate account. This offers 0% on authorised overdrafts for the first 12 months and after that charges a competitive rate of 12.9%.

To qualify, you must use Santander's Account Transfer Service, which will arrange for your direct debits and standing orders to move to your new account. This offer isn't available to anyone who has had an account with other banks in the Santander group in the past three months, including Alliance & Leicester or Cahoot.

If you only tend to dip into the red by no more than a couple of hundred pounds each month, you might want to consider an account which offers an interest-free buffer.

Citibank's Access Account, for example, offers a free overdraft facility up to £500, but charges 16.90% thereafter. Norwich & Peterborough's Gold Current Account permits you to go overdrawn by up to £500 interest-free for the first six months, and after that has an authorised overdraft rate of 11.74%.

For those who only need a small overdraft limit, First Direct's current account offers a £250 free overdraft buffer, but you will pay 15.9% above that amount.  New customers will receive a £100 cashback bonus for switching to the account, although a minimum monthly deposit of £1,500 is required.

Top accounts if you rarely go into the red

The Halifax Reward Account, which charges £1 a day if you go overdrawn by up to £2,500, is one of the best accounts for those who only occasionally dip into the red.
  
The account pays a £5 monthly reward if you pay in £1,000 a month, so if you only go overdrawn by three days then you'd still be £2 a month in credit after deducting the £3 in charges. Even better, if you sign up to the account through moneysupermarket.com, you get a £50 cashback bonus.

But if you go overdrawn by £500 for the whole month, it works out as one of the most expensive accounts, as you'd have to pay a steep £25 in charges made up of £30 in overdraft fees at £1 a day, less the £5 monthly credit.

Best accounts if you stay in the black

If you are lucky enough never to go overdrawn, then you need an account that pays a decent amount of interest if you are in credit.
 
Santander's Preferred in-credit rate account, for example, pays 5.00% on balances up to £2,500 for the first 12 months and requires you to pay in £1,000 a month. The account is also offering a £100 switching incentive if you move, but you'll need to hurry if you want to take advantage of this offer as it's being withdrawn on December 12.

Other accounts paying competitive rates of interest if you are in credit include the Lloyds TSB Classic Plus current account, which pays 2.50% on balances up to £2,500, and the Lloyds TSB Classic account with Vantage, which pays 2.00% on balances up to £2,999 rising to 4.00% on balances between £5,000 and £7,000. You must pay £1,000 a month into each of these accounts.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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