Overdraft penalty charges fall as banks wait for ruling

Unauthorised overdraft charges are falling as banks await the outcome of a High Court test case on the issue.

The average interest rate charged by current account providers to people who breach their agreed limit has come down from an average of 25.25 per cent a year ago to 20.01 per cent now, according to figures from MoneyExpert.com.

At the same time, 41 of the 136 current accounts available do not charge a monthly fee to people who go into unauthorised overdraft, while 65 accounts also offer an interest-free buffer to customers, it said.

Banks are waiting for the judgment in a High Court test case which could pave the way for a ruling on how much banks can charge customers for unauthorised overdrafts. The case was bought jointly by the Office of Fair Trading and seven high street banks and a building society to settle the issue after consumers began to reclaim charges through the courts.

The MoneyExpert.com research found that nine current account providers charge 29 per cent or more to people who fail to arrange an adequate overdraft.

Sean Gardner, MoneyExpert.com's chief executive, said: "It is encouraging that average unauthorised overdraft rates have dropped by 5 per cent in the past year. That said though, a 20 per cent rate is still... well above the average standard credit card rate."