How much does your overdraft cost?

banksOverdrafts are funny things. Not hilarious, clearly, but peculiar in the way the charges for them are calculated, which can end up being very pricey indeed. So expensive that even Wonga consider themselves a better lending option.

Of course, unauthorised overdraft fees are understandably pecunious, but even standard, arranged fees can vary wildly from bank to bank, and even between accounts at the same bank. Without sensible comparisons, consumers might be hard-pressed to calculate whether they will be better off or not switching banks.

Natwest and RBS have recently announced changes to their overdraft pricing structure (taking effect in July) and they are lowering the cap on maximum monthly fees, down from £186 to £90, which is almost certainly A Good Thing. However, for agreed overdrafts the new charge will be at least £6 per month. If you previously paid less than £6 in monthly interest, the changes will therefore be less of a good thing for your pocket. But what of the alternatives?

Figures compiled by the Independent show that the amount of overdraft you use  has a crucial effect on which account is best for you, and given overdraft finance is best used for unexpected additional costs, this can be very difficult to predict. Assuming a £250 overdraft is required for a month, a Halifax Reward current account would charge you a whopping £25 (£1 a day for 30 days less the £5 monthly rebate). Lloyds TSB’s Classic account would also come in higher than the new Natwest/RBS charge at £9.73, but the smart money would be with First Direct, who give you a £250 overdraft completely free.

However, if you are £500 overdrawn for two days in a month, then Halifax comes out on top, as the £2 in daily fees is covered by your £5 rebate. First Direct’s 22p is still a snip, but Lloyds TSB would charge you £6.52.

Although there are overdraft comparison services out there, other factors such as monthly fees, withdrawing cash abroad and credit interest rates (or cashbacks) mean the overall bank account picture for consumers is far from clear. It’s no wonder customers without a crystal ball can’t decide whether switching would work for them, resulting in default high retention rates for banks.

What do you think?

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