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Celestine on Moneybox - Barclays Bank Overdraft Fees
Barclays Bank Overdraft Fees
Barclays Bank are bringing in a new charging structure for overdraft usage from 16th June. That’s eight and a half weeks to switch if you think the new structure will be disastrous for your overdraft costs.
Kate Briscoe, co-owner of LegalBeagles discussed the new charges with Paul Lewis on Radio 4′s MoneyBox earlier today – you can listen to the programme again here
The headline change is the scrapping of interest charges of any kind. Sounds good? Many of us find interest calculations confusing, so this could make it easier to calculate what your overdraft is costing you?
The new daily fees are staggered at 75p daily for an arranged overdraft up to £1000, £1.50 daily for £1001 – £2000 and £3.00 for £2001 and higher.
This means that if you exist perpetually in your overdraft, you’ll be hit very hard by these new fees. Under the old interest led system, staying at £2001 overdrawn for a year would have cost you £386, but with the new system you’ll pay an eye-watering £1095 per year!
Once you’ve exhausted your agreed overdraft and you stray into an ‘Emergency’ or Unauthorised overdraft, the fees rocket to £5 per day but these are capped at £35 per month.
As compensation of sorts Barclays have done away with the much hated paid referral fees. However, they will continue to charge customers £8 per item they ‘bounce’ but these fees will be capped at a one £8 fee per day. If you had 20 direct debits all bounce on differing days, this could cost you £160 extra per month. That could add up to a hefty amount per year on top of the overdraft fees. Under the old regime, these were capped at £40 per day but had no monthly cap, so could be astronomical if everything bounced on different days.
So for those that live in their overdrafts and regularly enter unauthorised overdraft each month the comparison for remaining £2001 overdrawn is:
Old System
£1320 per year in overdraft useage fees (max)
£386 interest at 19.6% (higher if more)
Total £1706
(Bounced items £40 per day max)
New System
£420 per year in unauthorised overdraft fees (max)
£1095 per year in overdraft fees (max)
Total £1515
(Bounced items £8 per day max)
So if you live in your overdraft but rarely have things bounce, the new system is going to be painful financially. If you are a perpetual ‘bouncer’, the new system will be somewhat better.
Overall, I feel that Barclays has effectively switched ‘penalty fees’ for overdraft usage fees. Not knowing in advance what item the bank will choose to bounce or pay, makes it very difficult, if not impossible to calculate overall annual fees.
Given that Barclays have not considered a monthly cap on the £8 bounced item fee, I’d certainly recommend that people move their Direct Debit/Standing Orders to one or 2 single days in the month. That way, if they all bounce, you can only be charged 1x £8 fee!
Barclays are promoting this new system as a big improvement. Clearly, its actually fairly similar if you are always struggling and existing at the edge of your overdraft limit. With 9million people struggling with debt in the UK, we suspect these charges could affect many vulnerable people who will struggle to calculate how the new charges may affect them.
The sad thing is that it would probably be cheaper to put your family spending on a credit card or even consider a pay day loan as an alternative to using a costly overdraft. Most people who are paid at the end of the month, run out of funds by the 20th day or earlier. They would benefit from ceasing to rack up their overdraft at that moment, but to take out a payday loan which they could then repay fully on the 30th. If this action stopped items bouncing from the main account and prevented the usage of an unauthorised overdraft, it is likely the fees v payday/credit card interest would be lower. The other benefit would be that the credit card/payday borrowing would not seem ‘customary and habitual’ as overdraft usage seems to be.
Banks are very astute to the phenomenon of customer apathy. Often by the time you’ve got into serious debt, your credit file and lending reputation have been absolutely destroyed, so to move banks is not so simple. Also and perhaps more problematically, there is very little difference in overall fees between banks. I wouldn’t call them a cartel but they act as a ‘pack’ and they know that customers are effectively trapped in their regime.
This raises the other issue, lack of competition and lack of choice for consumers. Repeated attempts by Regulators have failed to ‘crack’ the overdraft/penalty fees problem in the UK. The OFT failed despite a valiant battle and I still feel strongly that our government needs to create a regulatory regime in this country which gives regulators decent powers to confront the greed that permeates the Personal Current Account market.
The banks make the vast majority of their profits from interest earned on normal bank accounts. These ‘interest fees’ are barely noticed by consumers and they fund the PCA system very well indeed. These are figures from 2006:
PCAs generate more revenue for banks than savings and credit cards combined: 31 per cent compared with 17 per cent and 13 per cent respectively.
Banks earned over 85 per cent of their revenues on PCAs from two sources: net interest income from credit and debit balances (£4.6 billion), and levying charges associated with insufficient funds (£2.6 billion).
So the banks are making a healthy 4.6 billion on PCA interest, but are gaining a further 2.6 billion in penalty fees. This income is the ‘bonus’ income, the ‘please the shareholders’ income. This level of profit can hardly be argued as essential given how successfully profit is gained from the PCA interest system.
Given that this income is generated effectively from peoples misery and ill fortune, I would personally want to see it drop to a far lower level in an ethical banking structure. It can’t be right that so much profit is generated from approximately 15% of their customers who regularly incur charges. The reason that £4.6 billion is ‘barely felt’ is because it is shared equitably between most customers.Whereas the £2.6 billion shared by the 15% who often also happen to be the poorest, the weakest and most vulnerable is felt most painfully indeed.
I still fail to understand how the bank account is not viewed legally as a Utility. An essential of modern life. It is not yet appreciated or recognised that it is now virtually impossible to exist without some form of bank account central to your finances. The current penalty fee system is based on the principle that, ‘A banker will lend you his umbrella, but ask for it back when it rains’ and because banks are ‘private’ companies trading for their shareholders, this is not likely to change without government intervention. At the very least the government should reconsider a ‘National Bank’ to run the banking of UK consumers who do not wish to participate in the unethical profit led system we are currently stuck with.
If the new FCA approaches the issue head on, then there may be potential for change. The team at the OFT were passionate and committed to changing the climate of banking but they were stymied by the free market economy combined with the current laws under which our banking system operates. Essentially, the banks can charge what they like, so long as they tell you clearly how and when they do it. So the FCA have got their work cut out if the current regulatory underpinning isn’t strengthened significantly to place banks into a whole new category of regulation and fairness and in doing so recognise that a bank account is an essential of everyday life which should not in itself place you at perpetual risk of entering a spiral of debt from which the average consumer will struggle to escape.
Kate Briscoe
Barclays Bank are bringing in a new charging structure for overdraft usage from 16th June. That’s eight and a half weeks to switch if you think the new structure will be disastrous for your overdraft costs.
Kate Briscoe, co-owner of LegalBeagles discussed the new charges with Paul Lewis on Radio 4′s MoneyBox earlier today – you can listen to the programme again here
The headline change is the scrapping of interest charges of any kind. Sounds good? Many of us find interest calculations confusing, so this could make it easier to calculate what your overdraft is costing you?
The new daily fees are staggered at 75p daily for an arranged overdraft up to £1000, £1.50 daily for £1001 – £2000 and £3.00 for £2001 and higher.
This means that if you exist perpetually in your overdraft, you’ll be hit very hard by these new fees. Under the old interest led system, staying at £2001 overdrawn for a year would have cost you £386, but with the new system you’ll pay an eye-watering £1095 per year!
Once you’ve exhausted your agreed overdraft and you stray into an ‘Emergency’ or Unauthorised overdraft, the fees rocket to £5 per day but these are capped at £35 per month.
As compensation of sorts Barclays have done away with the much hated paid referral fees. However, they will continue to charge customers £8 per item they ‘bounce’ but these fees will be capped at a one £8 fee per day. If you had 20 direct debits all bounce on differing days, this could cost you £160 extra per month. That could add up to a hefty amount per year on top of the overdraft fees. Under the old regime, these were capped at £40 per day but had no monthly cap, so could be astronomical if everything bounced on different days.
So for those that live in their overdrafts and regularly enter unauthorised overdraft each month the comparison for remaining £2001 overdrawn is:
Old System
£1320 per year in overdraft useage fees (max)
£386 interest at 19.6% (higher if more)
Total £1706
(Bounced items £40 per day max)
New System
£420 per year in unauthorised overdraft fees (max)
£1095 per year in overdraft fees (max)
Total £1515
(Bounced items £8 per day max)
So if you live in your overdraft but rarely have things bounce, the new system is going to be painful financially. If you are a perpetual ‘bouncer’, the new system will be somewhat better.
Overall, I feel that Barclays has effectively switched ‘penalty fees’ for overdraft usage fees. Not knowing in advance what item the bank will choose to bounce or pay, makes it very difficult, if not impossible to calculate overall annual fees.
Given that Barclays have not considered a monthly cap on the £8 bounced item fee, I’d certainly recommend that people move their Direct Debit/Standing Orders to one or 2 single days in the month. That way, if they all bounce, you can only be charged 1x £8 fee!
Barclays are promoting this new system as a big improvement. Clearly, its actually fairly similar if you are always struggling and existing at the edge of your overdraft limit. With 9million people struggling with debt in the UK, we suspect these charges could affect many vulnerable people who will struggle to calculate how the new charges may affect them.
The sad thing is that it would probably be cheaper to put your family spending on a credit card or even consider a pay day loan as an alternative to using a costly overdraft. Most people who are paid at the end of the month, run out of funds by the 20th day or earlier. They would benefit from ceasing to rack up their overdraft at that moment, but to take out a payday loan which they could then repay fully on the 30th. If this action stopped items bouncing from the main account and prevented the usage of an unauthorised overdraft, it is likely the fees v payday/credit card interest would be lower. The other benefit would be that the credit card/payday borrowing would not seem ‘customary and habitual’ as overdraft usage seems to be.
Banks are very astute to the phenomenon of customer apathy. Often by the time you’ve got into serious debt, your credit file and lending reputation have been absolutely destroyed, so to move banks is not so simple. Also and perhaps more problematically, there is very little difference in overall fees between banks. I wouldn’t call them a cartel but they act as a ‘pack’ and they know that customers are effectively trapped in their regime.
This raises the other issue, lack of competition and lack of choice for consumers. Repeated attempts by Regulators have failed to ‘crack’ the overdraft/penalty fees problem in the UK. The OFT failed despite a valiant battle and I still feel strongly that our government needs to create a regulatory regime in this country which gives regulators decent powers to confront the greed that permeates the Personal Current Account market.
The banks make the vast majority of their profits from interest earned on normal bank accounts. These ‘interest fees’ are barely noticed by consumers and they fund the PCA system very well indeed. These are figures from 2006:
PCAs generate more revenue for banks than savings and credit cards combined: 31 per cent compared with 17 per cent and 13 per cent respectively.
Banks earned over 85 per cent of their revenues on PCAs from two sources: net interest income from credit and debit balances (£4.6 billion), and levying charges associated with insufficient funds (£2.6 billion).
So the banks are making a healthy 4.6 billion on PCA interest, but are gaining a further 2.6 billion in penalty fees. This income is the ‘bonus’ income, the ‘please the shareholders’ income. This level of profit can hardly be argued as essential given how successfully profit is gained from the PCA interest system.
Given that this income is generated effectively from peoples misery and ill fortune, I would personally want to see it drop to a far lower level in an ethical banking structure. It can’t be right that so much profit is generated from approximately 15% of their customers who regularly incur charges. The reason that £4.6 billion is ‘barely felt’ is because it is shared equitably between most customers.Whereas the £2.6 billion shared by the 15% who often also happen to be the poorest, the weakest and most vulnerable is felt most painfully indeed.
I still fail to understand how the bank account is not viewed legally as a Utility. An essential of modern life. It is not yet appreciated or recognised that it is now virtually impossible to exist without some form of bank account central to your finances. The current penalty fee system is based on the principle that, ‘A banker will lend you his umbrella, but ask for it back when it rains’ and because banks are ‘private’ companies trading for their shareholders, this is not likely to change without government intervention. At the very least the government should reconsider a ‘National Bank’ to run the banking of UK consumers who do not wish to participate in the unethical profit led system we are currently stuck with.
If the new FCA approaches the issue head on, then there may be potential for change. The team at the OFT were passionate and committed to changing the climate of banking but they were stymied by the free market economy combined with the current laws under which our banking system operates. Essentially, the banks can charge what they like, so long as they tell you clearly how and when they do it. So the FCA have got their work cut out if the current regulatory underpinning isn’t strengthened significantly to place banks into a whole new category of regulation and fairness and in doing so recognise that a bank account is an essential of everyday life which should not in itself place you at perpetual risk of entering a spiral of debt from which the average consumer will struggle to escape.
Kate Briscoe