Borrowers who use their planned overdrafts are hit with higher costs

21st July 2015


Customers who plan their overdraft borrowing in advance are being penalised with rising fees, while those who fall into the red by accident are seeing their costs reduce., the price comparison website which carried out the research, says that while providers traditionally charged interest on the amount customers borrowed in their overdraft, in recent years other fees, such as usage fees, have been introduced. These fees sit either alongside the usual interest rate or in its place, and are designed to make bank charges clearer.

In July 2008, only 22% of non-fee charging current accounts levied a usage fee for an arranged overdraft, but this figure has now hit a record high of 63%, almost two-thirds of the entire market.

While many banks will argue that these fees are more transparent, they in fact raise the cost of borrowing via an authorised overdraft. The table below clearly shows how the cost of borrowing has soared for careful customers.

Rachel Springall, finance expert at, says: “Customers who carefully plan their authorised overdraft and pay it back diligently each month are being attacked with higher charges, with the cost for dipping into the red now hitting an all-time high.

“Those who have seen their charges rise over the years will be shocked by how much it will now cost to temporarily dip into their authorised overdraft. The average cost of a high street bank overdraft is now six times higher per month than it was seven years ago, rising from £2 monthly in 2008 to £12 today.

“Meanwhile, customers who are less prudent when it comes to arranging an authorised overdraft may find that their fees have shrunk. This is due to some banks putting caps in place to limit total charges as well as reducing the charge itself.

She adds: “Banks have been changing their overdraft structures for a more transparent approach, but this shouldn’t come at a cost to their customers. Sadly, this appears to be the case, as those who arrange their overdraft are taking on the burden of bank customers who don’t plan ahead.

“In the last year alone, 10 providers made positive changes to unplanned usage fees, but only three providers changed agreed overdraft usage fees, all of which were negative and increased costs.

“Worse still, the changing landscape for current accounts makes it even harder for customers to spot a decent deal, but in most cases, those who plan ahead and set up an overdraft will find that it’s the interest-only overdrafts that will cost them less.”

Standard bank accounts – cost for an authorised overdraft of £300 for 15 consecutive days

Provider Account name EAR (%) Total usage fees (£) 2008 – Monthly cost (£) 2008 – Yearly cost (£) 2015 – Monthly cost (£) 2015 – Yearly cost (£)
Lloyds Bank Classic 19.94 6 2.38 28.56 8.25 99
NatWest Select Account 19.89 6 2.37 28.44 8.45 101.43
Barclays Bank Account 0 11.25 2.21 26.52 11.25 135
Halifax Current Account 0 15 2.4 28.8 15 180
Santander* 123 Current Account 0 15 1.59 19.08 15 180
Average cost of the above high street bank accounts 2.19 26.28 11.59 139.08

Santander was Abbey in 2008, so the comparison is based on the Abbey account. NatWest offered a Current Plus account in 2008 and this has been used as a comparison.

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