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Unarranged overdraft fees that cost more than a payday loan


When people face a shortfall in their finances, they probably turn to their bank first. But it might surprise you to know we’ve found unarranged overdrafts that cost more than a payday loan.

Have you ever been in the situation where this month’s budget is looking fairly rosy just up to the moment when the car fails its MOT and you’re hit with a huge unexpected bill for repairs. In this situation, dipping into an unarranged overdraft can be costlier than you might expect.

Not everyone has a savings account buffer to help them deal with the unexpected costs, and these people face much higher charges from some high-street banks for using an unarranged overdraft than they would if they took out a payday loan.

When we took a look at the cost of borrowing £100 for 28 days what we found was that charges from some high street banks were as high as £90. This is up to four times higher than the maximum allowed charges of £22.40 on a payday loan.

Spiralling costs

But that’s only half the story. You’ve been sharing your experiences with surprise charges here on Which? Conversation.

Overdraft charges can add up quickly, as Peter Lloyd knows all too well:

‘I went over the overdraft limit when the bank put on its monthly charge, it cost me about £100 in total. They finally sent me a letter telling me of the penalties after the full seven days’ charges had been added; if they can let you know then, why not earlier? If they had notified me on the internet, I could have avoided all the charges. What is internet banking for?’

Matthew shared his feelings of hopelessness:

‘I’ve been stuck in an overdraft trap for a long time now. The charges mean I can never get out of it.’

Unreasonable and unexpected

Charges for an overdraft can seem punitive and unfair, as experienced by J Kelly:

‘The first time I went overdrawn, I wasn’t aware I had one. I was told the new card worked the same as the old card, but that this one was applicable for online banking. So I was quite surprised when I first unknowingly went overdrawn by about 11p, then got a statement a few days later for a £15 charge at the time. It hardly seems fair for such a petty amount.’

And as Nick Fletcher explains, there are vulnerable people being exploited by these charges too:

‘My son in his first years after university whilst still jobless and even today can match several dozen times that story of £90 fee for £2 overdrawn. In the world of banking it is often the poorest who end up subsidising the well-off. This reflects the totally distorted view of life and living that most banks have entrenched within their mean and nasty financial policies and objectives.’

Calling for fairer charges

We’re calling for a crackdown on unarranged overdraft charges as we find that consumers who need money in an emergency face higher charges for using an unarranged overdraft than they would if they took out a payday loan. We think unarranged overdraft charges should be set at the same level as arranged overdraft charges.

The Financial Conduct Authority has shown it’s prepared to take tough action to stamp out unscrupulous practices in the payday loans market, and it must now act to tackle punitive unarranged overdraft charges.

Have you been surprised by an unexpected charge for an unarranged overdraft?

Do you know how much your overdraft fees are?

No, I have no idea what the cost would be (45%, 2,553 Votes)

Yes, I do know how much I'd be charged (36%, 2,048 Votes)

I'm not sure (20%, 1,131 Votes)

Total Voters: 5,732

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Calling for fairer charges for unarranged overdraft fees speaks to me rather like closing the gate after the horse has bolted. The main criteria as far as I am concerned goes much deeper into the reasons why fairer charges are necessary in the first place. The following website for anyone curious enough to want answers can shed some light on and maybe appease some of the apparent frustration that has built up during this topic and demonstrates how both emotional and cognitive forces can stimulate overspending with credit.

@ psychology today.com – Why We Overspend With Chedit – Scott Rick PhD. 22June2013

The salient overspending problem appears to lie with the way the mind interprets the difference between paying cash or credit and whether you are a spender or a saver and how we as a nation have developed a dependency on living now and paying later. There’s more @ spectrum.mit.edu The Psychology of Spending.

It could be argued of course “this is the norm” but when delving a little deeper you soon begin to realise to what extent we depend upon and have been won over by the large financial institutions who, as Ian has posted above, made £1.2bn in charges last year.


Beryl, I haven’t yet looked at this link but found years ago that having a credit card changed my attitude to spending somewhat. I am cautious by nature but credit of any kind that makes a purchase easier does tempt us into making a more spur-of-the-moment or more expensive purchase, whereas parting with cash from my wallet made me think harder – do I really need to buy this? And, of course, the cash was real money I had saved up. A cheque book had a similar effect. Now I use a credit card mainly for free credit; I pay it off in full every month. The upside of credit cards is convenience, particularly with the internet. But they require self control, and whilst we can blame the banks for introducing them it is we who use them.

We use debt all the time. The classic is the mortgage, which often gets overlooked; who could possibly aspire to a home of their own without incurring debt? But if we miss enough payments we lose our home – we cannot normally blame the lender when that happens.

I cannot understand why, when people have the opportunity to avoid the high charges, they don’t arrange an overdraft facility. particularly if they’ve once had their fingers burnt. That is surely the place to start. If they are not a good credit risk then the bank should simply not allow them to overdraw. Is that not a simple solution?


I enjoyed reading several articles on psychology today.com, which are easy to understand and relate to.

I am reminded of a friend who died ten years ago. I got to know him because of a shared hobby interest. He was an avid collector and had a bigger collection of OS maps than most bookshops. That made some sense because he did a lot of travelling and used maps regularly, but somewhat eccentrically he also had a large CD collection long before he had a CD player, largely thanks to Britannia Music and other mail order companies that existed at the time. He also had many box sets of video tapes but could not afford to buy a player that worked reliably. At least he could enjoy his growing book collection, and he was an avid reader. He spent a fortune on car repairs and would eventually buy another old car. He would never fill up the tank of his car and frequently ran out of petrol. In most other respects he was normal person and helpful to me and his many other friends. He and his wife had savings but he was paying substantial interest to his credit card companies or bank every month. He knew that if he stopped spending money on unnecessary purchases for a few months he could clear his debts and have more money to spend. It never happened.


Wavechange, I was very interested to read about your friend who was obviously fulfilling a deep seated need of his own by gaining material pleasure from his collections. He was, I would surmise, a spender who was extremely fortunate to have a wife who was a saver. I was once married to an extrovert spender whose hobby was collecting credit cards! When one card had reached its spending limit, another would be used to enable him to continue his spending and his very expensive lifestyle , and then another ad infinitum………


I recall that he did pay the household bills because I remember him saying that he waited until the red ones arrived. His wife worked for a local hospice and I don’t know if she had an income. It looked like continuous but controlled debt. He gained pleasure from his maps and books but much of the other stuff cluttered up their home and garage. When I first knew him, everything was meticulously organised, especially his extensive photo collection, but that went downhill as his health deteriorated. I know materialistic people with expensive cars and boats but he was not one of them. He had a decent house in a nice area, and I assume that he had just become accustomed to living in debt. Improvements such as replacement windows were done a couple at a time – hardly a good way of getting value for money.

I vaguely know a couple of other people who have struggled financially. One couple was forced to sell their house when they could not make ends meet and they now live in rental property on benefits. I know of someone else who had little income and was living in rental property. She told me that she had become bankrupt and looked forward to having a fresh start. Having heard other tales of people I don’t know, I’m convinced that debt problems are many and varied. Whether they are genuine hard luck problems or simply lazy people who don’t manage their money, I don’t think they deserve high interest charges so that the rest of us can enjoy free banking. Many of us are accustomed to paying nothing for banking services even if we keep a low credit balance. I wonder if anyone would like to justify this.


I don’t think it is high interest charges – my bank charges the same rate whether the overdraft is arranged or not. It is the fixed charges attached to unarranged overdrafts that seem to cause the most criticism, particularly when the overdraft is small.

My plea remains – encourage all who qualify to make the sensible move and arrange an overdraft facility if at any time it is possible you will overdraw. Then the other charges are irrelevant to you.


Just in case it is a factor, perhaps we should campaign to put an end to high interest charges. If the banks can provide evidence that their charges are reasonable I will reconsider but for the time being I will assume that they are being greedy. If we could do a Freedom of Information request we could establish whether the banks are being greedy or whether this is a popular myth. I have no reason to criticise my bank over how it handles my current account.


If you mean % interest these are clearly shown in the banks I have looked at and are somewhere around 17-19%, about the same as credit cards are for many. For short term emergency borrowing do you see these as unreasonable? If you want longer-term borrowing and more money then it would be sensible to take out a loan. My bank currently, on the web, shows an interest rate APR 4.6%.

We need perhaps to devote more effort to ensuring people have information upon which to make financial decisions, but looking at you bank’s website, and talking to them, is a good way to start.


I appreciate this but what I don’t know is what profit the banks are making. The fact that we have free banking suggests that those in the red are being exploited by the banks. I don’t know any other commercial organisation that would provide many of their customers with a range of free services. Do you?

To be viable, all companies must obviously make a profit, but I don’t approve of exploitation of some customers for the benefit of others. Would it not be fairer if you and I paid for banking services? Charities and businesses do. I don’t expect my suggestion would be popular, but at least it is fair.


I am not sure of the extent of your friends hoarding
practices Wavechange but excessive hoarding is an offshoot of OCD. You can read more about it @. psychologytoday.com
The Psychology Behind Hoarding.

It is possible to take out Mortgage Payment Protection (MPPI) Insurance in the event of accidents, illness, redundancy etc. with protection for up to one year to tide you over. My son-in-law took advantage of this for about 3 months until he found another job. With today’s uncertain job prospects this seems a wise thing to do.
To have to relinquish your home through debt must be very painful.

It must be very difficult for couples when one partner has
a spending problem and constantly goes overdrawn. I still maintain keeping a small contingency is the best answer as opposed to going over into the red and being encumbered with interest whether it be either at a high or low rate Malcolm. A little amount put by every month can soon add up; a small price to pay for peace of mind. I am very relieved that I don’t have that worry anymore.


I wouldn’t mind paying for banking. It is a valuable service and with my banks it is a good service.

Credit cards are free, paid for by those who borrow or default and the retailers. I get up to 2 months free credit.

I believe some electric car charging points are free.

I get 2 hours free parking paid for by those who stay longer or pay penalties.

Nothing is free really, though, is it. Your deposit in a current account is invested by the bank to make money. It just may not reflect the real cost – like you pay the same council tax even if you don’t use all their facilities like schools and sports centres.


Hoarding can be caused by a feeling of a lack of security in childhood and replacing that with objects round the house to obtain a feeling of “ownership ” but you have to differentiate between that and say a woman having a very large collection of cuddly toys which is part of the nurturing process or even a want to be cuddled or loved (in the finest sense ) . I have been in many females bedrooms (repairing bedroom phones ) and some had wall to wall furry “pets ” staring back at me . Men have tool-sheds full of tools I have a large collection of electronic equipment ,old valve radios manuals, old electrical antiques , bakelite phones bric a brac- etchings , watercolours etc etc . My wife has a room full of cuddly toys and even going to car-boot sales there is always a female happily clutching a stuffed tiger or leopard toy leaving the site. I hoard a lot to repair -ie-spares but if push came to shove I could live in a very modern style house in minimalist fashion as long as I had my hi-fi gear and books .


I would be prepared to pay too, providing that charges had some relation to costs of servicing a current account and used to decrease interest rates, and not as an excuse to generate further profits. I had expected charges to be introduced when interest rates fell to current levels, though the banks would not have been popular if they had. At least with services funded by council tax, everyone has the opportunity of using services.

I don’t understand why interest rates are so high