Rising overdrafts mean it's time to cheque out of your current account
The Nationwide's increase in charges for those in the red means it's time to shop around
Saturday 06 June 2009
The Nationwide this week became the latest to ramp up charges on overdrafts, while Barclays is increasing its rate from Monday. The building society increased the interest it charges on overdrafts by 1 per cent to 18.9 per cent last Monday, while Barclays' standard rate climbs from 17.9 per cent to 19.3 per cent in two days' time.
"This increase will hit customers who are becoming ever more reliant on their overdraft facility during the downturn, especially those who have to work reduced hours or accept a lower rate of pay to keep their job," says Andrew Hagger of moneynet.co.uk.
Customers of the mutual will feel particularly hard done by as the building society has hiked the authorised overdraft to almost double the rate it was a year ago. In June 2008 it stood at 9.9 per cent, before being increased to 12.9 per cent that month. In February it rose to 17.9 per cent before the latest leap.
The Nationwide defended its action by saying: "We have to look at our entire product range and what the rest of the market is doing. Rates have to move up in line with our competitors to ensure we run a prudent and sustainable business."
In other words, despite the bank base rate falling to its lowest levels for decades, the Nationwide feels the need to strengthen its profits by upping interest charges. To be fair, it has slashed the cost of its unauthorised rate over the last year from 24.9 per cent to 18.9 per cent, which leaves people who go into the red without permission being charged quite a deal less.
Other current account holders will follow the trend, says Kevin Mountford, head of banking at moneysupermarket.com. "The moves by Nationwide and Barclays are disappointing – while the base rate remains static, banks really have no excuse to hike prices. There is little doubt though that these moves will kick-start a series of rate reviews by others."
Our table shows how banks have increased overdraft rates in the past 16 months leaving the average charge climbing from 10.06 per cent to 11.6 per cent, but if Mountford is right, rates will soon start climbing across the board. It's clearly worth keeping an eye on your account to see whether it's still giving you value, while another rate change being introduced on Monday makes the argument for considering switching accounts even stronger.
From 8 June Abbey and Alliance & Leicester – the banks owned by Santander – are increasing the credit interest rate on their high interest accounts to 6 per cent. Gillian Almond, Santander's current accounts manager says: "We are bucking the trend in the current account market at a time when many other providers have reduced the rate they pay to customers with balances to as low as 0 per cent."
Of course, it's only worth switching accounts if you will save money.
So anyone who regularly goes into the red should be looking at finding the account with the lowest charges. Contrarily, anyone with a healthy balance semi-permanently in their bank account would be better off chasing the best-paying deals. However, that doesn't mean simply picking the highest-available rate, as Andrew Hagger explains.
"From Monday, the Santander brands of Abbey and Alliance & Leicester will offer the highest return on current account balances with both paying 6 per cent on the first £2,500 for the first 12 months. The deal sounds great but the maximum benefit you could get at this rate is £120 for the year (net of 20 per cent tax) and that's only if you maintain a £2,500 balance, which I suspect few people do.
"For those who keep a small credit balance in their current account, then the Reward Current account from Halifax offers a much better deal. As long as you pay in a minimum of £1,000 each month, you'll receive a net monthly payment of £5 each month (£60 per year) irrespective of your balance," says Mr Hagger.
If your average credit balance is £1,250 or less then the Halifax comes out on top, however, be aware that any overdrafts on this account are charged at £1 per day (up to £2,500), so if you tend to dip into the red from time to time then it's not such a good deal."
Apart from the Halifax, Abbey & A&L accounts, nobody else comes close, he says. Lloyds TSB pays 2.5 per cent on the first £2,500, but the rest of the providers in the market are barely worth mentioning, Mr Hagger says.
Ed Bowsher of lovemoney.com is a fan of the Santander deal, but warns that the bank is still suffering from a high level of customer service complaints. "I like the Alliance & Leicester Premier Direct account because it offers a fantastic rate. However, it falls to 1 per cent after the first year and, we've had several complaints about the bank's customer service along with a smaller number of compliments."
He says another option is to go for the First Direct First account which offers a £100 sign-up bonus. "You have to pay in a salary of at least £1,500 a month, but if you don't like its service or you're just greedy, you can leave after six months and start a new account to pick up a further £100 from First Direct."
Packaged accounts, however, should be avoided, says Mr Bowsher. "The normal drill is you pay a monthly fee for a special deluxe account that offers added extras such as free travel insurance or access to VIP lounges at airports. For most people these deals don't make sense as they don't do enough travelling to make a profit on the account. Most people are better going for a nice simple free current account."
Choosing the right account means picking the deal that is most suitable for your personal circumstances and one that will cost you the least, if anything. Kevin Mountford, from moneysupermarket.com, tips Alliance & Leicester for those who are regularly overdrawn.
"A&L offers a free overdraft for a year on borrowing up to £2,000, but it also has one of the most compelling long-term overdraft deals," says Mountford. "As with the Halifax Reward Account, A&L has stopped charging an annual interest rate on overdrafts. Instead you pay 50p a day for being in the red. However, unlike Halifax, the amount you can be charged is capped at £5 per month making it a much more competitive deal for those who are in the red for most, or all of the month."
If you tend to have between zero and £1,500 in your current account then Mr Mountford – like Mr Hagger – favours Halifax's Rewards account, but warns that those regularly going overdrawn should avoid it. "Customers who go into the red pay £1 a day on overdrafts up to £2,500 with the Halifax deal. The charge rises to £2 a day on overdrafts above £2,500 and if you go overdrawn without permission you will incur a daily charge of £5. So if your current account is always overdrawn, you'll be paying more than £300 a year in overdraft fees."
Checking the charges and credit interest rates before signing up to an account is clearly essential to get the best value, but it's equally important to check the small print and penalties.
Five Questions On: Mortgage affordability
Mark Dampier: 'So what if a recovery fund is out of luck? The clue is in the title'
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Questions of Cash: We bought the special ceramic poppies. Then the saga began
Simon Read: 'The limit is set to rise for Premium Bonds. Will your appetite?'
- 1 Saudi Arabia mosque bombing: Two volunteer security guards hailed as heroes for stopping Isis suicide bomber reaching worshippers
- 2 Maisie Williams has an excellent message for one confused fan
- 3 There is something wrong but very right about this Bible illustration
- 4 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
- 5 Tampon tax scrapped in Canada after petition convinces conservative government
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
A nation of inequality: How the UK is failing to feed its most vulnerable people
Australian man punched in the face for defending Muslim women from abuse on train
David Starkey 'tells Amal Clooney to shut up and stop over-promoting human rights'
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...
Day In a Page
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool