Alliance & Leicester has announced that it is to stop charging interest on overdrafts - and replace it with a daily charge instead.

From now on, customers that go overdrawn on their current account will pay no interest, but will be charged an overdraft usage fee of 50 pence per day.

The charges - which the bank says "simplify" things for customers - will be capped at a maximum of £5.

And another "simple £5 fee" will be charged daily when customers go over their agreed overdraft limit.

Andy Bayes, head of current accounts for the bank, explained the new charging system by saying: "Alliance & Leicester is committed to offering free banking for customers who stay in credit.

"Our research confirms that 94 per cent of people agree that having a bank account should be free."

A report from the OFT earlier this month concluded that banks and building societies make £3.5 billion per year from overdraft fees.

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