Banks face price war over loans

Barclays Bank is declaring war on other high street banks by slashing the monthly cost of authorised overdrafts for more than 7 million current account customers from pounds 10 to pounds 5 a month.

Almost 30 per cent of the bank's account holders who go overdrawn at some stage each year will benefit from the cut when they receive their next statement.

The reduction will put pressure on other banks, many of whom levy high monthly charges, to bring down the cost of borrowing for 25 million of their own overdrawn clients.

Barclays' move brings it closer into line with fees set by building societies, who have never imposed an additional charge beyond an annual rate of interest on overdrafts.

In the past year, the societies have won hundreds of thousands of new accounts by competing for custom among clients who refuse to pay heavy fixed costs simply because they go into the red by pounds 100 or so each month.

Despite the bank's reduction, however, its own annual overdraft charges are still well above those of many societies and even some banks.

Halifax levies an annual 12.4 per cent on authorised overdrafts, while Woolwich charges 9.5 per cent. By contrast, Barclays charges 19.2 per cent, plus its new pounds 5 monthly levy.

Its former monthly fees were above those of other banks - NatWest charges pounds 9 a month, Lloyds levies pounds 8, Midland's monthly fee is pounds 7, while TSB already charges pounds 6. A Barclays spokeswoman said: "What we are trying to do is rationalise the three current accounts that we have by bringing them together into one.

"We will still be paying interest on the accounts if account-holders remain in credit. Free banking, which was already available, will continue and there will be no charges for letters when overdrawn."

The bank denied that its decision, due to take place next week, had been caused by competition with building societies: "They have relatively few accounts compared to us and there is no evidence, in terms of the number of accounts we have, that we have lost ground to them."

Halifax Building Society said that since cutting interest charges for agreed overdrafts last year, the number of its Maxim current account holders had risen by 230,000 to about 1 million. Not all those who opened an account did so just for this reason.

Both Woolwich and Nationwide also said they had gained new customers since their decision to lower overdraft charges, although they gave no figures.

Other banks said yesterday they were "watching the situation with interest". None said they would follow suit immediately.