Changes to overdraft fees from RBS/Natwest should make life easier, but banks need to be careful that their fees don’t punish people who need the overdraft facility most.
Royal Bank of Scotland/Natwest became the latest big bank to announce an overhaul to its overdraft charges in October, promising to replace its current litany of fees with a simpler system in February 2011.
This certainly seems to be a step in the right direction. But there’s definitely room for improvement.
How overdraft fees add up
At the moment, Natwest customers who accidentally bust their overdraft limit can quite quickly end up with a hefty bill. First up, there’s a £20 ‘maintenance charge’ for going past your limit. Then on top of that, there’s a £15 ‘paid referral fee’ which is charged for every day in which money comes out of your account once you’re over your limit (capped at £90).
That’s a total of £35 when the first item takes you over the edge, and potentially, another five days worth of £15 charges if direct debits and standing orders continue to come out over the following week – leaving you with potential fees of up to £110 in a few days.
If the bank decides that it’s not going to let you bust your limit – and rejects any payments due to be taken from your account – you’ll be hit with a fee of £5 per bounced transaction (up to a £50 limit).
Its new charges are certainly simpler. When you bust your limit, there will be one ‘unarranged overdraft fee’, which will come in at £6 a day.
Plus, a new text message service should help customers from incurring these fees at all. Customers who sign up for its Act Now service will receive a text message informing them they’re about to bust their limit, giving them till 3.30pm to credit their account. This should go a long way to ensuring the bank is not profiteering from customers’ honest mistakes.
Not so impressive is the increase in the fee for customers who are not allowed to bust their limit. The ‘returned item’ fee will rise from £5 to £6, and the monthly cap will go up from £50 to £60.
Make overdraft fees fairer
Sadly, the people who are most likely to have transactions rejected when their account runs out of cash are those who are on the lowest incomes. In these cases, a text message is not going to change the fact that they’ve run out of money.
The situation could be even worse for those who are struggling financially and who are then granted an unarranged overdraft by their bank. Here, there’s no cap at all on charges, so you could rack up a £180 bill if you managed to stay over your limit for the whole month.
Although customers have to bear some responsibility for keeping their accounts in the black, it’s also important that bank charges don’t end up adding to customers’ financial difficulties.
Banks should put lower caps in place on fees to ensure they are not punitive to customers, and should have clear guidelines about how they will deal with those who are in hardship. RBS has made a decent start, but it’s not there yet.