Overdraft interest charges hit highest level in ten years

Since the catastrophic global credit crisis swept across the UK, leaving the banking industry to face huge losses, the UK’s banks have been taking whatever steps necessary to try and recoup the massive losses, which were made worse by the recession, which left many borrowers unable to continue with repayments on loans, credit cards, and other forms of finance.

Reports have highlighted the various ways in which banks have been trying to claw back their financial losses and shore up their own finances, including reducing the interest paid on savings accounts to little or even nothing in some cases, and sneakily increasing the interest rates charged on loans and other forms of credit.

Another recent report claims that the interest rates being charged on current account overdrafts have now been hiked up to their highest level ten years, with the average rate of interest being charged on accounts that are in the red increasing to 14.22 percent.

The report states highlighted that this was twenty eight times higher than the base interest rate, which is at an all time low of just 0.5 percent, where it has been since March of last year. It also stated that the base interest rate was a massive 6 percent last time average overdraft interest rates exceeded 14 percent. Officials believe that this is yet another move by banks to try and make more money from customers and improve their own profits.

An official from the financial industry group Moneyfacts stated: “Despite eventually winning the OFT case banks made significant changes to the level of charges they will levy for unauthorised borrowing. As one revenue stream closed inevitably they have moved to find another. Banks are likely to be making more now from these increases than they ever were from penalty charges.”

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Thousand leave Halifax over bank charge changes

It is reported that around seventy thousand customers have left the High Street banking giant Halifax amidst anger over changes to the way it charges for overdraft facility usage. There is also speculation that customers of the bank are still leaving, which means that eventually the changes may have cost the banking giant in excess of 100,000 customers. Many customers are said to have moved to rival banks, with many others trying to open new current accounts with an alternative bank so that they can leave Halifax. Read more

No interest will be charged on A&L overdrafts

Another bank has revealed its new charge structure with regards to overdrafts and bounced cheques. According to recent reports the Alliance and Leicester will now no longer be charging any interest at all on its overdrafts on current accounts.

The bank will also be reducing the charges applied for a bounced cheque, which will go down from £34 to £25. Officials from the Alliance and Leicester state that in place of interest charges on overdrafts new daily charges will come into force.

Banking will still be free for customers that keep their accounts in credit, state bank officials. The new charge structure is due to come into force around the third week of October. Some banks, such as Lloyds TSB, have already announced their plans to reduce overdraft charges and fees for bounced cheques, which many think is a direct response to the investigation into bank charges that has been carried out by the Office of Fair Trading.

However, officials from Alliance and Leicester claim that this is not the case, and that they had plans to change the fee structure prior to the investigation.

One official from the Alliance and Leicester stated: “The combination of fees and interest is unnecessarily complex when you are trying to present your business as simple.”

Under the new charge structure customers using an authorized overdraft will be charged 50p per day up to a maximum of £5 per month. If the overdraft is unauthorized then the customer will have to pay £5 per day until the account is brought back into order.

One industry professional stated: “Customers should ask themselves whether the new simplified fee structure does actually save them money in the long-term.  According to our analysis, the new way of charging will result in Alliance & Leicester customers being marginally better off.”

Tom Smith
24th October 2007

Lloyds reductions in charges may not be all that great

Consumers and campaigners were pleased when Lloyds TSB, one of the UK’s major high street banks, recently announced that it was cutting its charges for unauthorized overdraft use, bounced cheques, and returned direct debits.

However, the victor has quickly turned to concern, with campaigners pointing out that under the new charging structure many bank customers could actually find themselves even worse off than they are now.

Lloyds TSB announced that it would be cutting the charges for bounced cheques from £25 to £20. It also announced changes to charges for unauthorized overdraft use. Previously going over the overdraft limit meant a customer would be charged £30 with a maximum of three charges per month. However, this has now been changed to a monthly fee of £15 and then between £6 and £20 per day for a maximum of ten days.

Officials state that this could mean that someone that exceeds their overdraft limit by £100 could clock up £200 in charges. An official from Which? stated: ‘These charges appear excessive. If you go over by £100 in the course of a month you could end up with total fees of up to £200.’ Other major banks have also made changed to their charges following in the footsteps of Lloyds, but is seems that these charge reductions may not be as beneficial as they initially appear.

The Office of Fair Trading has recently announced that if banks do reduce their charges to the satisfaction of the OFT then the test case scheduled for next year may be cancelled. However, this will only happen if the reductions made by the banks are in the consumers’ best interests.

Tom Smith
20th October 2007

Students protest against HSBC

Students in the UK have launched a protest against one of the UK’s leading banks, HSBC, and the protest has been quickly gaining popularity through the Facebook website.

Students are now threatening to boycott HSBC over new regulations that will mean the end of the hugely popular three year interest free overdraft facility on graduate accounts with the bank.

Many graduates have benefited from this three year interest free overdraft facility with the HSBC over recent years, enabling them to enjoy a financial lifeline without paying interest between leaving university and starting work.

However, the bank has stated that many of these accounts were abused, and this combined with high levels of bad debt have resulted in the bank having to make a commercial decision to scrap the three year interest free overdraft facility.

However, students are arguing that the reason they joined the bank in the first place was to be able to take advantage of these popular graduate accounts. The protest comes at a bad time for the bank, which along with other banks in the UK, is now vying for the business of new students that are starting university as the academic year kicks off.

One student stated: “They’ve shot themselves in the foot to be quite honest. Why would they want to alienate themselves from graduates who’ll be earning high salaries in years to come?”

Another stated: “I am so disgusted with HSBC right now – it actually makes my blood boil… Never before have I lost so much faith in an organisation. As soon as I can I am closing my account, moving my ISA and finding a new decent bank.”

Tom Smith
6th October 2007

Overdraft warnings will be displayed to HSBC customers

In a recent announcement the HSBC bank has revealed that its customers will now receive a warning if they try and withdraw money from one of its cash machines and the withdrawal could take them over their overdraft limit.

The machines will display the warning to customers that risk going overdrawn as the result of taking out the cash, which will offer additional protection and help to safeguard the customers from being hit by expensive bank charges.

The bank has warned that this facility will only be available to its own customers and not to customers of other banks that are using the cash machines, and this is because the bank has no access to the overdraft details of customers of other banks even if they are using HSBC cash machines. Over 3500 machines will have the facility to display this message, and the scheme is due to come into force at the beginning of October.

Although the precise wording that will appear to customers has not yet been confirmed HSBC officials state that this will help to make its charges more transparent and help customers to avoid having to pay the charged at all by enabling them to stay within their limits. The bank has also stated that if unauthorised borrowing amounts to under £10 per day no charge will be made. This will also be the case if money is paid back into the account by the end of the day to cover the amount of the money withdrawn or if the customer has not exceeded his or her limit in the past six months prior to going over the limit.

One HSBC official stated: “More than 95% of HSBC cash withdrawals are now made at ATMs and while you can already check your account balance before you make a withdrawal, few people do. We believe that alerting customers at this point will enable them to make an informed choice about whether to proceed.”

Tom Smith
20th September 2007

Overdraft interest rates go up

Recent reports have indicated that some banks and lenders have raised their overdraft interest rates by huge amounts over the past year, by far exceeding the interest rate rises that have been imposed by the Bank of England in terms of the base rate. Read more