Barclays first to cut overdraft fees

Thursday 29th May 2008

One of Britain's largest high street banks is to slash its unauthorised overdraft fees with the launch of fee charging current accounts today.

Barclays is introducing a flat £8 fee for each transaction that puts people over their overdraft limit – with a maximum of five charges a day totalling £40.

Current overdraft fees stand at an average of £30 per paid referral fee and £35 per unpaid fee – capped at three per month and one per cent respectively.

Barclays is also bringing in a 'Personal Reserve' feature of £250 on top of a standard overdraft that can be used for a single fee of £22 for five working days.

"Our customers wanted a simple, clear way of managing payments when they go beyond agreed limits," said Mark Parsons, managing director of current accounts at Barclays.

"Our new approach has been tested with consumers extensively over the last two years and we are confident that our products will promote account switching to Barclays."

Barclays is introducing a new range of five current accounts – three with monthly fees for running the accounts – ranging from £3 to £25.

The accounts with fees offer higher interest rates on balances, limited interest free overdrafts and insurance deals.

Customers that do not want to pay a fee will be offered a basic bank account which will offer no interest on balances – although the existing rate is just 0.1 per cent.

Pressure has been growing on banks over unauthorised overdraft fees as consumers try to claim back penalties they deem to be unfair. The Financial Ombudsman Service reported yesterday that it had received nearly 40,000 complaints about bank charges in the last twelve months a five fold increase on the previous year.

Meanwhile the Office of Fair Trading (OFT) is currently lined up against the high street banks in the High Court over whether the watchdog can say if the fees the banks currently charge are fair.

The High Court initially ruled that the OFT had the power to recommend changes to overdraft charges. But the banks have appealed the ruling as they fear this will lead to the OFT capping charges for overdrafts at a much lower rate than they are currently.

They also fear the OFT could order them to refund the difference between the previous overdraft charges levied and the new capped rate, which they claim could leave the banking industry with a bill of £10 billion.

Andrew Hagger of Moneynet.co.uk said of the Barclarys move: “With bank charges still very much on the agenda as the OFT court case rumbles on, Barclays has announced some radical changes to its current account range.

“It is definitely a move in the right direction to see that customers will be given the flexibility of a 'Personal Reserve' facility which will allow them to exceed their agreed overdraft facility within an agreed limit for up to five days and be charged a one off flat fee of £22.

"This is a vast improvement on some other high street accounts where you are subject to an unauthorised fee of up to £28 plus additional interest and/or charges of up to £20 per day."

He added: "Let’s hope this is just the start and that other financial institutions respond with equally competitive and less punitive deals.”

Research out yesterday also revealed many Brits want free banking to remain and are willing to accept some fees for overdrafts.

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