If you go overdrawn, have you ever worked out how much it’s costing you? Do you wait for your bank to tell you how much it’s charging you each month and keep your fingers crossed that it’s not too painful?
If you did try to work out these costs, you’d probably find it virtually impossible to work out accurately. This is what we found when we asked 18 volunteers to do the maths.
Our volunteers calculated the cost of an unauthorised overdraft for the main current accounts of 12 of the biggest banks. Of the 72 calculations we asked them to do (six per bank) they only got 10 right. Even a principal inspector of taxes was only able to get one of this four sums right.
It’s essential to be able to work out the cost of using different current accounts based on your spending habits so you can choose the right one. In the worst case we found, you could be more than £2,000 out of pocket over a year by choosing the wrong account for your spending habits.
Informed, unplanned, unarranged and unapproved
What makes unauthorised overdrafts so difficult to understand is that there is usually a range of different charges you need to factor into the total cost and every bank does it differently.
Some charge interest, some don’t. Some charge fees for unpaid transactions while others charge fees for paid transaction as well. Some don’t charge for either. Some banks charge daily usage fees, some charge monthly usage fees and some charge both. Plus they all have different buffer amounts and daily and monthly caps and some automatically give you a free or cheap authorised overdraft when you take the account out.
It also doesn’t help that banks call unauthorised overdrafts different things. Among the 12 banks we looked at, they’re called informal, unplanned, unarranged and unapproved overdrafts. This makes it hard to know what to look for when you are searching for information about the charges on their sites – it took our volunteers an average of 10 minutes to find it.
Making our bank account usage data available
Our volunteers found Santander’s charges the easiest to work out. It doesn’t charge interest, just a daily usage fee and a fee for paid and unpaid transactions. You can see how the other banks compare in our results table.
While charging fixed fees and no interest can make the calculation easier, the way this information is presented can still make it difficult – Barclays doesn’t charge interest but our volunteers found the information on its website so confusing that most of them thought interest was payable in our scenario.
We want the Government to force banks to provide customers with their usage data in a consistent, downloadable and anonymised format. Comparison tools could then be developed to use this data to rank bank accounts by cost, while preserving your privacy. It’s not just a question of simplifying these costs, it’s understanding how the cost relates to your personal account usage that’ll make the difference as to whether you’ve got the right account for you.
Are you baffled by your bank’s overdraft charges? And are you confident that you’ve got the best current account for your needs?