However, the timing of the move – ahead of a decision of the new Supreme Court on whether or not the Office of Fair Trading (OFT) can regulate these unauthorised borrowing charges – has prompted claims that the bank is simply climbing down before it is forced to.
So what will NatWest and RBS’ new charges be?
From the beginning of next month customers will be charged:
Unpaid item fee (eg bounced cheque) - £5 (down from £38)
Paid referral fee - £15 capped at £90 per month (down from £30)
Guaranteed card payment fee - £15, maximum capped at £90 a month (down from £35 and maximum charge of £105 per day)
Maintenance charge - £20 (down from £28)
Unarranged borrowing rate of interest – 19.24% EAR down from 29.69%
Market analysts also point out that the charges remain high.
Kevin Mountford, moneysupermarket.com’s head of banking, said: “The banks have always argued that their charges reflect the costs associated with managing unauthorised borrowing. But most of the major banks have made changes to their unauthorised overdraft fees over the past 12 months, which suggests they are struggling to prove these fees are fair.”
And RBS/NatWest is not alone in charging customers who go overdrawn without authorisation at this level. While many of the other big banks have reduced their penalty fees over the last year or so, the cost of slipping into the red even by just a few pounds can still prove enormous.
Kevin added: “Although any reduction in fees is good news for consumers, RBS customers will still be subjected to high unauthorised overdraft fees and rates – up to £15 a day. Yet the key thing to remember is that these fees can be easily avoided – you just have to make sure you stick within your agreed overdraft limit or don’t go overdrawn without permission.”
How do the other banks’ overdraft fees compare?
Britain’s big banks have been coming under fire for their overdraft charges for several years now. This culminated in a court case ruling that the fees were unnecessarily high, and not justified by the costs involved for the banks.
More than 350,000 customers had overdraft charges they had paid in the past refunded as a result.
However, the banking industry then took the matter to the House of Lords, leaving a further 1.2 million people in limbo, awaiting the outcome of the ongoing legal battle. It is the House of Lords’ decision that will now be handed down by the new Supreme Court.
Until that ruling is heard, most of the big banks continue to punish current account customers who borrow without authorisation with high penalty fees.
Lloyds TSB, for example, charges people going overdrawn in this way £15 a month, plus a daily charge of up to £20 if they are £100 or more over their limit.
And Abbey imposes a monthly fee of £25 plus daily charges of up to £30 for those who borrow more than £30 without permission.
So, which are the best current accounts for overdrafts?
The best way to avoid paying unauthorised overdraft fees is to avoid going into the red without clearing it with your bank first.
It may be worth setting up a small overdraft facility in case of any slip ups – although you must be careful to resist the temptation to treat it as free money.
Anyone who often needs to use an overdraft should also consider switching to a current account with a competitive overdraft offer.
Alliance & Leicester’s Premier account, for example, offers a 0% authorised overdraft facility for the first 12 months, after which charges are capped at £5 a month.
The bank is also currently offering new customers a £100 incentive for switching to the account (you must transfer some direct debits to your new A&L account and pay in at least £500 per month to qualify). Another benefit of this account is that it includes European travel insurance. Read ‘It’s back! Move your current account and net £100’ for more information on this offer.
Be careful though, you will still be hit with a £25 fee for the payment of any items that push you over your overdraft limit.
Kevin Mountford’s article ‘What’s the best current account?’ offer more advice on which deal will be most suitable for you.