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Bank Charges

Most of us have a bank account through which we run our everyday finances.  Usually we will use the account for receipt of our wages or salary and then bills are paid and purchases are made from the bank account.  If run smoothly there will usually not be any charges incurred on the account.  However, if we go overdrawn or do not have enough money in the account for outgoing payments, the penalties can be high.

According to internet bank Egg, one in three consumers have been charged an average of four times for going overdrawn.  That equates to £1.3 billion of banking charges over 12 months.

Banks will often allow you to overdraw your bank account. If you have arranged for an overdraft facility on your account, you will be charged an authorised overdraft rate - the rate of interest that you will pay on your overdrawn balance if you remain within your authorised limit. If you have not arranged an overdraft facility or exceed your authorised limit, you will be charged interest at the unauthorised overdraft rate. This rate will be much higher than the authorised rate. You may also be charged a fee for being overdrawn.

According to a moneyfacts.co.uk user poll, 52% of us use an overdraft facility on our bank account.  Some of us may have planned for this but we can sometimes go overdrawn on our account without knowing.  The average rate for an unauthorised overdraft is around 25% Effective Annual Rate (EAR).  Many banks also charge you for the letter they send, notifying you that you are overdrawn; this is usually around £35.

If you have direct debits set up on your bank account or pay a cheque out and do not have sufficient funds in your account to cover this, you will be penalised.  Typically charges for this are £35.

This is why it is important to make sure you keep an eye on your bank account balance.  If you think you will not have enough money in your account, it is wise to transfer money from your savings if you can to avoid these charges.  If you need to go overdrawn, make sure you arrange this with your bank.  Authorised overdraft rates are a lot lower at around 12% on average.