Money News
| Rate (AER) | Interest Free Buffer | ||
|---|---|---|---|
| A & L | 0.00% | £1 |  |
| A & L | 0.00% | £1 | |
| Barclays | 9.90% | £1 | |
| Citibank | 13.90% | £1 | |
| Barclays | 17.90% | £1 | |
| * Based on £500 Overdrawn and is a limited guide to the market | |||
Alliance & Leicester is the latest bank to announce changes to the way it will charge customers who go overdrawn in future. From this autumn, overdraft interest will be a thing of the past for all Alliance & Leicester current account customers. The new fees will apply to customers for statements issued from 22 October onwards and A&L's new customers will continue to benefit from free overdrafts in the first 12 months.
Instead, customers making use of their agreed overdraft will pay a simple 'Overdraft Usage' fee of 50 pence a day. This will be capped at a maximum of £5 per month. There will be no fee for arranging the facility, and it will only apply when the overdraft is used. This makes it much simpler for customers to work out the cost of borrowing.
For customers who go over their agreed overdraft limit, a further £5 fee will apply each day the account remains over the agreed limit. This replaces both overdraft interest and the fees charged for going over the limit - currently £25 on Day 1 and £25 on Day 5, if still over the limit.
Whilst some may slip over their limit but then quickly retrieve the situation, others continue to present additional payments. The situation for these customers has also been simplified and the fees reduced. Alliance & Leicester will charge a 'Payment Review' fee of £25 will apply to payments presented when the customer is over their agreed limit - but all payments under £10 will be processed free of charge. The current distinction between the 'Unpaid Item' fee of £34 when the payment is 'bounced' and the 'Paid Item' fee of £25 will be scrapped.
Andy Bayes, Head of Current Accounts said, "Alliance & Leicester is committed to offering free banking for customers who stay in credit- our research confirms that 94% of people agree that having a bank account should be free.
"However there is a lot of confusion when it comes to overdrafts. Nearly two out of three (62%) people with an overdraft facility admit that they don't know the rates that apply to their overdraft - and those who are aware massively underestimate them.
"We have therefore set out to simplify our current account fees in line with what customers want. Two thirds (67%) of people with a view think interest on overdrafts is complicated to work out and replacing this with a simple daily fee for going overdrawn would make it easier for them to manage their money."
Alliance & Leicester admits that not everyone will benefit from the new arrangements but says that the changes should be at least 'cost neutral' for most and believes that the increased transparency of the charging structure will benefit all their current account customers.
Under the new charging structure, authorised overdraft usage would cost account holders a maximum £60 a year. This is equivalent to an overdraft interest rate of 6.15% EAR, which for A&L Premier Direct customers is actually slightly higher than the previous rate of 5.9% EAR charged after their initial 12-month fee free overdraft.
Alliance & Leicester's move follows current account changes made by other banks. See: first direct reshapes current account and Lloyds TSB's new 6.4% 'plus' current account
The banks' moves are being widely interpreted as a reaction to the 'threat' posed by an Office of Fair Trading (OFT) investigation. Earlier this month the OFT released its first estimates of the amount of money banks are raking in from overdraft charges. The OFT, which is bringing a test case against the banks in January, reckons the Britain's banks could be earning as much as £3.5 billion a year.
15 July 2008 © Moneyextra.com
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