Barclays slashes overdraft fees

Barclays has announced a radical shake-up to its current account charges which will place the other major banks under pressure to reduce their overdraft fees.

The bank is cutting its unauthorised borrowing charges from £30 to £8. These are the fees that are levied if you exceed your overdraft limit or go overdrawn without permission; have a cheque bounced or have a direct debit or standing order declined due to insufficient funds. Barclays’ announcement is highly significant given the ongoing court case between eight financial institutions (including Barclays) and the Office of Fair Trading. (OFT)

The court case centres around whether or not the high fees levied by current account providers are fair – customers can be charged hundreds of pounds just for going overdrawn for a few days. Providers obviously argue that these charges are reasonable and Barclays’ maintains that the £30 fees it has been charging customers are fair. However, its decision to slash unauthorised borrowing fees to £8 raise questions about whether or not fees of £30 or more can be justified.

Kevin Mountford, head of current accounts at, said: "The big question is whether this is effectively the first climb down by one of the major banks in the face of the OFT ruling – an admission that its overdraft charges were too high in the first place? It will be interesting to see what moves the other big banks make now."

However, while Barclays’ decision to reduce overdraft fees may appear to be great news for the consumer, it is part of a major overhaul in the way Barclays structures its current accounts and while it is giving with one hand, it is taking with another. While some customers may benefit, others will lose out.

The lower overdraft fees take effect in August. At the same time Barclays will introduce a 'Personal Reserve' buffer which means customers can exceed their overdraft, or go overdrawn without permission, by up to £250 without incurring a penalty charge. However, they will have to pay £22 for every five days that they make use of the Personal Reserve.

Barclays is also increasing its authorised overdraft rate from 15.6% to 17.9% on June 2 and from July 1 it will stop paying in-credit interest on its standard current accounts. The only current accounts that will offer interest to those in credit are the packaged accounts which have a monthly fee.

If other financial institutions do follow suit and cut their unauthorised borrowing fees we are likely to see them make changes in other areas, as Barclays has done, to ensure that they do not lose revenue from it.

Mountford added: "This move of Barclays to reduce overdraft charges with the one hand and credit interest with the other is a direct result of the work the OFT has been doing and something we have been warning about: If overdraft charges are to fall, consumers will pay somewhere else."

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