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Spend & Save

Simon Read: Big banks have ways to make you pay through the nose

In a week when payday lenders have been put in the spotlight by regulators, it seems quite fitting for current accounts to come under scrutiny as well.

That's because, surprisingly, going into the red with your current account can actually be more expensive than turning to a high-cost short-term credit company.

And with the big banks charging a range of different fees and interest rates, it's nigh on impossible to calculate which may be better if you need a little extra cash for a few days.

For instance, a quick check of the overdraft deals offered on the main current accounts from the big four banks which dominate the marketplace reveals a few crucial, but confusing differences.

Barclays' Bank Account looks simple, with a charge of just 75p a day but no interest charged when you go into an agreed overdraft.

But how does that compare with HSBC's Bank Account which has no fee but charges 19.9 per cent interest when you go into the red?

Or would you be better off with a mix of the two, as NatWest and Lloyds offer on their leading accounts? (Both, incidentally, charge £6 a month plus interest topping 19 per cent.)

The answer is that the best account for you will depend on how you use it. How long will you be in the red, for instance? Could there be extra charges for standing orders being turned down? Do you get interest on credit balances which can be offset against the overdraft charges?

All these questions mean that it's impossible to work out easily which account is best – but get it wrong and the costs will quickly mount.

In fact, with the most expensive current account, going into the red without permission could cost an extra £183 a month. Researchers at Which? discovered the shocking variation between the most expensive and cheapest deals late last year. Even those dipping into an authorised overdraft for just a few days a month with the wrong account could end up £120 worse off a year.

That's why the Competition and Markets Authority needs to speed up its investigation and banks need to simplify their range of accounts and charges.

The more they fail to do so, the more it will appear that they've deliberately obfuscated the market to boost their profits. And that surely can't be the case?