Money Insider: Overdraft shake-up signals an end to free banking

lloyds tsb customers who make use of their agreed overdraft facility will find themselves having to stump up an additional £5 per month for the privilege from 2 December, the bank announced last week.

While the decision to reduce unauthorised borrowing charges from the same date is a welcome move from the bank, it is alarming that a chunk of this lost revenue will be recouped from customers who play by the rules and operate within their approved overdraft limit.

For many years, people have been talking about the end of free banking, and even though no bank has – or perhaps ever will – come out and said that they are going to start charging for using a current account, the number of stealth charges still continue to mount up.

Throughout the long-running bank charges saga many people feared that if unauthorised fees were deemed unfair by the courts then we'd all end up having to pay for our banking.

It didn't happen and the bank charges case may now be all but forgotten, but with the coalition Government promising to clamp down on unfair charges, it is worrying that this move from Lloyds TSB may not be the last where unauthorised charges are cut only to be passed on to the majority who manage to keep their overdraft in check.

So while you may get the basic banking package, ie ATM card, cheque book, statements and direct debits for free, we are steadily moving towards a situation where you'll have to pay for any extras.

Is it not enough that customers are faced with overdraft interest rates of between 15 per cent and 20 per cent (yes, 30 to 40 times base rate) without having to cough up an additional fee on top?

At one stage if you went into the red it was simple, you only incurred daily interest charges for being able to borrow money from your bank.

However, the introduction of "more transparent" daily overdraft fees from Halifax last December and the new £5 monthly fees from Lloyds TSB from this December means that customers need to grab their calculators and double-check that their bank account is the most cost-effective for the way they manage their money over the month. For example, Alliance and Leicester charge 50p per day (up to a maximum of £5 per month); Halifax charge £1 every day a customer is overdrawn (£2 per day over £2,500); and now Lloyds TSB is going to add its two-penn'orth of confusion courtesy of an additional monthly fee on top of any interest already payable.

There is now a worry that other banks will follow this move and introduce a monthly fee for overdrafts, too; it's certainly easier when they're not the first to do so and can claim to be making changes in line with their competitors.

With all of us having to keep closer tabs on our finances in the wake of the recent Budget and forthcoming spending cuts, the last thing consumers need is to be hit with additional costs for managing their money.

Saving rates go same way as England's World Cup campaign

Savings rates came under the spotlight again this week: it is now no longer possible to obtain a rate of 5 per cent or more on a straightforward fixed rate savings bond.

ICICI Bank UK, the long-time market leader, trimmed its rates on Tuesday to just 4.75 per cent AER for those customers looking to lock their cash away for the maximum term in order to achieve a decent monthly income.

These rates have gradually been falling from a relative high point of 5.65 per cent just nine months ago, and whilst a cut of 0.90 per cent may not sound like a huge amount, for someone with a £50,000 deposit it equates to £1,800 less interest over the five-year term, or £30 less per week after basic rate tax.

On the topic of savings bonds, it was interesting that Nationwide Building Society's Football Bond was withdrawn once England had qualified from the group stages of the World Cup.

At the time, I assumed it was part of the original terms and conditions of the product – either that or the Nationwide boys had been privy to some top class football being played by our boys behind closed doors and got a bit nervous about having to pay out a bonus on the rate. However, following the embarrassing debacle last Sunday, I can only assume that it must have been down to the former.

Andrew Hagger is a money analyst at Moneynet.co.uk