Current account Guides

Current account charges

By Becca Talbot becca.talbot@consumerchoices.co.uk

Our guide gives you the inside track on what the banks charge for, how much they charge, and more importantly, how to avoid paying the charges (Updated 9/7/09).

The Office of Fair Trading has estimated that Britain’s biggest high street banks are making more than £8bn from their customers’ current accounts, cashing in on charges for overdrafts and overseas spending, and leaving many customers with mounting debts.

Hitting the headlines for all the wrong reasons, current accounts have been slammed by the OFT for their hidden costs and extortionate fees. But your current account doesn’t have to be a banking nightmare.

Getting an unexpected charge can be nasty surprise, that’s why it pays to find out about your current account charges. Our guide will give you the inside track on what the banks charge for, how much they charge, and more importantly, how to avoid paying the charges .

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• What is a current account charge?
• Avoiding the charges
• Can current account ‘sweeping’ help me avoid charges?
• Finding a bank with low charges
• Reclaiming the charges
• Our recommendations

What is a current account charge?

Banking is a highly competitive market, and competition between banks is fierce when it comes to getting customers to sign up to Current Accounts. Many banks offer freebies and discounts as incentives to draw in customers, such as £100 cash back, or vouchers upon opening the account. And, with all the offers, it is easy to forget that current accounts come with charges.

While some charges are made clear when you open your account, for example the interest charges on your overdraft, some charges may be less obvious, and may only apply during certain times. Many customers are unaware of what their bank will charge them for things such as requesting a duplicate statement, or unpaid item fees.

These “hidden” charges can often leave a sizable dent in your bank balance.

Accessing your current account abroad can incur charges that many people are oblivious to. These can vary substantially from account to account, so it is always worth reading the rates and charges before signing up for your current account, especially if you travel abroad quite often.

Current account charges to look out for include:

• Charges to use your debit card to withdraw cash from ATM machines while abroad
• A purchase fee for travellers’ cheques
• A fee for exchanging sterling into a foreign currency, and back again
• A charge for cashing a non-UK cheque.

Some banks charge a monthly fee for their current accounts. These are known as packaged accounts and often offer benefits such as free travel insurance, breakdown cover and offers on insurance. However, you need to weigh up the cost of the monthly fee against how much money the benefits will save you, to see whether this suits your requirements.

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Avoiding the charges

Avoiding current account charges is no easy feat, but you can start by looking at all the options available to you, to see if you’re making the most of what’s on offer, to minimise the the cost of borrowing.

If you think you’re liable to hit your overdraft limit, it’s worth doing a bit of research well in advance. Does your current account have a ‘buffer’ zone? Some banks will give you a bit of leeway, maybe £10 or so, before they start charging you for being over your limit. However, many banks don’t, so make sure you check the rates and charges with your account.

What if your account is over the limit for a very short period of time? Some banks won’t charge you if you get the funds back into your account within 24 hours, or before the end of the next working day, but others can be stricter. Lloyds TSB, for example, gives its current account customers a very short ‘grace period’ – they have up until 3.30pm of that day to get their balance back into its limit. Ideally, you won’t want to ever be this close to the edge, but it’s good to know in an emergency.

Make sure you check your balance regularly. Online banking is usually the easiest way of doing this, but some lenders also provide free text message updates. Checking regularly will help ensure you don’t exceed your limit, and it will also mean you’re aware of fraud or other account problems as and when they happen, with some banks even providing a text message service to warn against suspicious activity with your account.

As a last resort, have a look at what standing orders leave your account, and when. You may be able to rearrange them so the direct debits come out after you’ve just been paid, meaning you’ll have sufficient funds to pay them. Remember to check with the recipient first though, to make sure they don’t mind waiting a few extra days for their money. A parent or relative may be a little bit more lenient than your landlord!

If you know you’re about to go over your limit, the best thing you can do is let your current account provider know straight away. If possible, go into your local branch or ring their customer services. You may be able to negotiate a temporary overdraft extension to tide you over.

Of course, the best way to avoid charges is forward thinking. Budgeting carefully and living within your means should ensure you don’t need to operate these last minute tactics.

If you are not happy with your current provider’s charges and fees, switching current accounts is easy, and can be done online.

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Can current account ‘sweeping’ help me avoid charges?

Current account ‘sweeping’ is the process by which money is automatically moved from one account to another when it is not required, in order to benefit from a higher interest rate. It can take one of two forms; overnight sweeping and monthly sweeping:

1. Overnight sweeping - You can set a limit so that if the money in your account goes above a certain level it will automatically be ‘swept’ into a savings account overnight to earn more interest for you. Similarly, when your account is running low, money will be ‘swept’ back, topping it up to cover your cheques and other payments, meaning effectively, you should never go over your authorised overdraft limit.
2. Monthly sweeping - You can also set a limit and a date each month so that if the money in your account goes above a certain level on that date it will automatically be ‘swept’ into a savings account to earn more interest for you. As with overnight sweeping, you can also maintain a minimum balance in your account as money will be ‘swept’ back on the agreed date if the balance falls below an agreed amount, meaning you’ll have adequate funds in your account for your direct debits.

Contact your current account provider to find out whether it offers this service.

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Finding a bank with low charges

Without doubt, all banks will charge you a fee for something, whether it’s because you’ve gone overdrawn, or because you’ve brought something abroad using your debit card. Finding a bank with low charges is the answer to avoiding a large hole in your bank balance.

In the battle of the current accounts, several providers have slashed their overdraft fees, and now charge significantly less than others. The key is shopping around, looking at what’s on the market at the moment, that will suit your needs.

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Reclaiming the charges

At present, you are entitled, by law, to make a claim for charges paid on unauthorised overdraft charges in the last six years, however your bank may do very little about your grievances at the moment.

The Office of Fair Trading (OFT) has taken action against seven banks and one building society. This court case is still pending, but if it is upheld that these bank charges are excessive, then you will be entitled to a refund of these charges, in part or in whole.

Read our ask our expert article on reclaiming your current account charges for more information.

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Our Recommendations

Many customers have found that switching current accounts to one that more adequately suits their needs is a good way of avoiding the charges and fees that come with some accounts. Compare current accounts now to see if there is a current account that charges less and is better suited to your needs.

Chris Eagle, Financial Director of CreditChoices.co.uk says: “When you sign up for a Current Account it is essential that you read the rates and charges, as you may suddenly find yourself being charged for things you weren’t aware of.”

“Use our Current Account comparison tool to look at what’s available at the moment, and to help you choose a Current Account that suits your needs.”

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