Customers making a one-off mistake on their overdraft could pay an average £44.98 for the error, according to new analysis* from MoneyExpert.com. The fees mount up because banks charge twice – once through an arrangement fee and again if a cheque or direct debit is bounced.
Average total charges are a staggering £44.98 and fees for an unauthorised overdraft can go much higher. Around 30 per cent of all current accounts charge a combined fee of £60 or more for straying beyond your borrowing limit.
By contrast, fees for defaulting on a credit card are a standard £12 after being capped by a recent investigation by the Office of Fair Trading.
MoneyExpert.com is warning customers not to expect bank charges to fall any time soon, as a court case on whether the charges are fair will not be resolved until 2008 at the earliest.
Sean Gardner, Chief Executive of MoneyExpert.com, said: "Some people might think that their bank charges are on the verge of being reduced or scrapped following the recent OFT investigation and the glut of claims. But the court case continues and the charges remain.
"When you could get stung for more than £60 just for going beyond your overdraft limit, people need to pay careful attention to their spending and the arrangement they currently have with their bank. Few don’t charge at all so you should talk to your bank about a more realistic limit if you’re incurring fees regularly. You can also query charges when they are imposed."
According to MoneyExpert.com most banks charge a customer for going beyond their overdraft limit in two stages. The first is if it must set up credit for an item to be paid, or if they have to arrange for proposed payment to be returned because there aren’t enough funds available in a customer’s account. Secondly, over half of all current accounts levy a separate one-off charge, normally called a ‘monthly account fee’, ‘arrangement fee’ or ‘borrowing fee’.
MoneyExpert.com analysis shows the average unpaid item fee is £31.38 and the average one-off charge is £13.60 adding up to an average overall bank charge £44.98.
And while some packaged accounts do not charge fees at all for arranging overdrafts, around half of all accounts charge above the average amount. The highest possible one-off fee is £67, while the lowest is £25. The average APR on unauthorised overdrafts is 25.57 per cent.
Sean Gardner added: "Our switching index has consistently shown that current accounts are the key switching battleground. With fees as high as they are, and with uncertainty around charges likely to remain well into next year, we anticipate an even greater number of people will swap banks in the coming months."
The Banking Code states that current account providers have to provide details of standing orders and direct debits within three working days of a switching request from a new bank. The new bank has to provide details of the new account within 10 working days after approving an application. Five years ago the process could take as long as 12 weeks, MoneyExpert.com says.
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* MoneyExpert.com analysis. Unauthorised overdraft fees take into account unpaid item charges and monthly charges / admin charges / arrangement fees.