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Lloyds TSB overdraft changes:

With overdraft charges in the spotlight, and undoubtedly a target for the Office of FairTrading (OTF) to intervene and impose reductions, Lloyds TSB has been the first off the mark to announce reductions to its overdraft fees.

The returned item fee has been reduced from £35 to £20, but the changes made to its excess overdraft charge could be more costly for some borrowers. The tiered structure to the overdraft charges would indicate that serial and excessive abusers of overdrafts agreements could be severely punished, with an excess of over £100 for a full month costing a whopping £215 in fees.

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For those customers who make infrequent or small excesses into overdrafts, the charges seem much fairer at a flat monthly fee of £15 plus £6 per day for excesses of less than £25.

Current account fees are becoming more complicated and less transparent. While it is in the interest of consumers to see fees reduced, complicating the market and including 'ifs buts and maybe' into current account fee terms and conditions can only cloud the consumer's understanding.

The final enhancement Lloyds has made is to offer a text alert service to notify borrowers if they become within £50 of their overdraft limit. In principle this appears to be a good idea, but we suspect it will only appeal to a niche group of customers who teeter around their overdraft limit. But many of these customers even with an alert, may not have the means to stay within their overdraft limit.

Alliance and Leicester has adopted a more transparent charging structure, but it is not good news for all of their customers. A&L currently levies a £25 charge to customers on the first and fifth day that they exceed their overdraft limit. Under the new proposals, the customer will be charged £5 per day, which in the worst case scenario could see the customer being hit with charges of £155 per month.

On a more positive note, A & L has decided to scrap the charging of overdraft interest and replaced it with a daily fee of 50 pence, capped at £5 per month.

These changes mean that it is becoming far more difficult to compare current accounts, but if you agree an appropriate 'in case of need' overdraft limit with your bank and use the internet to keep a close eye on your finances, the issue of who charges what for unauthorised borrowing shouldn't really influence your choice of provider for your current account banking.

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