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Your Money > Banking Articles > Overdraft rip off...
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By Sarah Modlock
How much are you paying for your overdraft? I know a few women - and men - who can seriously dent credit or debit cards on a shopping trip, but even they would hard-pressed to drop £260 million in a day. That's the amount Alistair Darling is borrowing as our public finances plunge even deeper into the red. The £8 million gap between tax receipts and government spending is likely to get worse and threatens us all with higher taxes, cuts in public spending and other nasties, in the coming months and years. Is Darling losing sleep at night? I very much doubt it. But for mere mortals overdrafts are the biggest financial worry right now, according to Citizens Advice, coming ahead of credit card debts, becoming jobless, getting into arrears with council tax and even the threat of being made homeless. This comes as Royal Bank of Scotland (RBS) customers are being hit with the highest unauthorised overdraft charges on the high street. If you bank with them and go overdrawn without permission you can expect to be stuck with fees of £118 according to consumer campaigners Which?. The charges are based on a customer who had an unauthorised £30 overdraft for three days , including charges for a £10 cheque on the first day , a £10 direct debit on the second day and a £10 standing order on the third day, all of which were paid by the bank. Of course no one expects banks to bear all the cost and admin hassle of unauthorised overdrafts but how can RBS justify this amount? It makes the £15 fee charged by Halifax look positively benevolent. HSBC charges nothing when its customers drop into unarranged overdrafts and only levies a charge on its account holders if they go more than £10 over their limit each day. Alliance & Leicester , which is now part of Spanish banking giant Santander , has the second highest charges under the Which? scenario at £90 , while Smile and the Co-operative Bank, both part of the same group, would charge £80. Barclays had the third lowest charges at £22, as it offers customers a personal reserve, with people paying £22 for every five working days that they use their reserve , with no further charges levied as long as they remain within this limit. "Given the billions that have been put into the banks by taxpayers , consumers will find it difficult to understand why such high and unfair charges continue to be imposed on unauthorised overdrafts," says Phil Jones of Which? He advises: "If you're regularly hit with these charges , then shop around and switch to a bank with lower fees. We also want the courts and regulators to ensure that customers are protected from potentially unlawful charging structures." The RBS matter is a thorny one because of course it is 70% owned by you and I and given its previous - and existing - problems, we don't want it to give away something for nothing. But RBS defended its charges, saying that although it came out as the most expensive bank under the Which? scenario, in other circumstances it would be one of the cheaper providers. But charging eight times more than its rivals in any circumstances is way over the top. And if banks really wanted to discourage or put an end to unauthorised overdrafts then they could ensure that it was impossible for the money to leave your account. Meanwhile, the other banked bailed out by our taxes, Lloyds is charging customers up to £200 for going overdrawn. Holders of standard current accounts that go at least £100 into the red without being approved will be hit with an 'unplanned overdraft fee' of £20 a day for a maximum up to 10 days. Test case You might recall that in 2007 the Office of Fair Trading (OFT) brought a test case against seven banks and one building society (Abbey , Barclays , Clydesdale , HBOS , HSBC, Lloyds TSB and RBS and the Nationwide) challenging the fairness of fees they impose on unauthorised borrowing. The case went to appeal at the House of Lords this June and a decision is expected later in the year. It means that banks and building societies do not have to deal with any complaints made by customers about these charges until the court case is resolved. The price you pay With more and more people depending on overdrafts to tide them over , it's important to shop around for the best deal. A £1, 000 overdraft for 10 days each month will cost an average £47.34 over a year based on the average rate of 14.4%, according to Moneynet.co.uk. Some accounts are beginning to charge daily fees, rather than interest - and although this is more transparent, it can prove more expensive. Halifax 's Reward Current account charges £1 a day for authorised overdrafts up to £2 , 500 and pays £5 credit a month. This means you will pay £60 a year to be overdrawn by £1 , 000 for 10 days each month. Alliance & Leicester's Premier Direct account offers a free overdraft for the first year. First Direct's 1st account offers £100 to switchers and an interest-free £250 overdraft - but you must pay in £1 , 500 every month. Bank rates down , overdrafts up You could be forgiven for thinking we were living in a high-interest climate as overdrafts rates have soared as the Bank of England's base rate has plummeted. Analysis by price comparison site moneysupermarket.com shows current account overdraft interest rates have risen by an average of 1.54 percentage points since February last year. With the Base Rate static at 0.5% since March, overdraft rates had stabilised until Nationwide bucked the trend in June and hiked the cost of going overdrawn on its FlexAccount by one percentage point to 18.9% EAR. Nationwide has now increased its overdraft rates by six percentage points since December last year , when the rate was at 12.9%, and almost doubling them from 9.9% last February. History of Current Account Activity - Feb 08 to June 09
* Introductory In-Credit and Overdraft offers for the first 12 months Source: www.moneysupermarket.com
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