Money Insider: Overdrawn and overwhelmed? It's no wonder

 

This week NatWest and RBS gave advance notice of some alterations to their current account charges for both unauthorised and agreed overdrafts. Some of the pricing changes due to be introduced in the summer represent a positive step – particularly the maximum £90 a month cap for unauthorised overdraft fees, less than half the potential £186 some borrowers are facing at present.

Although the fee reduction for unauthorised borrowing is welcome, the bad news is that from 12 July a new £6 monthly fee is being introduced for customers who make use of an agreed overdraft limit.

Although this type of tweaking of fees and allowances isn't anything new, the baffling array of overdraft charging structures used by banks and building societies makes it far from easy to find the best account.

With some banks charging you interest on the amount you borrow, others charging a "more transparent" (but often more expensive) daily fee and NatWest/RBS charging a combination of a monthly fee and daily interest, it's no wonder consumers haven't got a clue what's the best option for them.

No bank is cheapest for overdrafts in all situations; factors including the amount you're in the red and the number of days you use your agreed limit have to be considered.

For example, if you are overdrawn by £250 for a full month, you will pay £25 (£30 less a £5 monthly rebate) net in charges with the Halifax Reward current account and £9.73 with a Lloyds TSB Classic account. However, if you bank with First Direct (minimum £1,000 monthly income required) the first £250 you borrow is free of interest charges or fees.

If you are £500 overdrawn for just two days during the month the Halifax Reward current account is a far better option as you will pay a £1 daily fee for each of the two days but will receive your £5 monthly rebate, so in effect you will have paid nothing. Under the same scenario, the First Direct overdraft will cost you 22 pence and the Lloyds TSB Classic account £6.52.

Selecting the most appropriate current account isn't just about how much an overdraft costs or how much interest you'll earn on credit balances.

There's another area to consider these days when deciding on the bank account that works for you, and that's the charges levied when using your debit card when abroad.

Most banks and building societies will charge you a foreign transaction fee of 2.75 per cent on each cash withdrawal and purchase made by debit card; a few banks charge an additional transaction charge of between £1 and £1.50 per purchase.

To give you an idea how valuable this benefit can be, if you use your card to spend £1,500 during your two-week holiday overseas, in most cases you'll pay at least £41.25 in foreign charges and even more with some banks that sting you for transaction fees on top.

Compare this with the interest return you can earn on your current account. If you have a credit balance of £2,000 in a Lloyds TSB Classic Account with Vantage, which pays a competitive 2.0 per cent at this level, even if you manage to maintain this balance for a whole year, your interest return after basic rate tax amounts to just £32. If you've got a balance of between £3,000 and £5,000 the rate increases to 3.0 per cent – yet another option to factor into the equation.

Debit cards that don't levy a charge for overseas transactions are pretty rare, but if you are a frequent overseas traveller, take a look at the Gold Classic Current Account from Norwich & Peterborough Building Society, which gives you free overseas debit card transactions as part of the deal. You only need to pay in a minimum of £500 per month to qualify for the free bank account, which is much less than with many competitor accounts.

It's no wonder that the number of people switching bank accounts remains at such a low level. Despite the promise of instant cash handouts and other introductory sweeteners, confusion reigns and many customers stick with their existing bank, despite there being better-value options out there.

There is growing talk of introducing portable account numbers so that people can switch accounts in just a few days. But until there's a way for people to simply work out the best home for the way they run their bank account, this portability won't make an ounce of difference: it's more clarity, not more speed, that customers are seeking.

Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
PROMOTED VIDEO
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
News
news
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Life and Style
fashionThe supermodel on her career, motherhood and Cara Delevingne
News
i100
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Sport
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
football
News
people
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Arts and Entertainment
Rachel, Chandler and Ross try to get Ross's sofa up the stairs in the famous 'Pivot!' scene
tv
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    COO / Chief Operating Officer

    £80 - 100k + Bonus: Guru Careers: A COO / Chief Operating Officer is needed to...

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments