UK banks make £4bn a year from overdrafts

Britain's biggest banks are making more than £4bn a year from interest charges and penalty fees on overdrafts, according to a report to be published today by uSwitch.

The price comparison service will say that 3.5 million current account customers are permanently overdrawn, while the average overdraft among 14 million customers who are regularly overdrawn is £677.

Based on the findings of a survey conducted by the pollster YouGov, uSwitch calculates that British banks are charging £1.1bn a year in overdraft interest, plus a further £3bn in unauthorised overdraft penalties.

At least a third of Britain's 40 million current account holders say they have been overdrawn without authorisation at some time, paying average penalties of £70, while 2 million people have exceeded their overdraft limits more than four times over the past 12 months.

The report comes days before regulators are due to announce a crackdown on excessive overdraft charges and other unfair penalties that hit borrowers. The Office of Fair Trading is expected to announce its final decision next week on whether to impose a cap on penalty charges levied by banks and credit card lenders. It is expected to set a limit on the charges that lenders can make when borrowers fail to make credit card payments on time or exceed their overdraft limits.