Millions in the dark on bank charges
29 August, 2007
Two-thirds of the nation are currently unaware of how much they have to pay when going into the red on their current accounts.
The independent financial comparison website, MoneyExpert.com, says around 66 per cent of the population – or around 30 million people – admit to being completely in the dark when it comes to how much they are charged by their bank for being overdrawn.
And despite the current controversy surrounding bank charges, the survey shows that even those who have successfully claimed back a bank charge were unable to confirm how much these were.
Sean Gardner, chief executive of MoneyExpert.com, said: “Bank charges may be a hot topic in the media but many people’s idea of how much they are being charged for their overdrafts is horrible wide of the mark.
“Going overdrawn can be costly. Average unauthorised overdraft interest rates are around 25 per cent and fees for going in the red without permission can be as much as £30. it’s critical that people check with their bank to ensure they are borrowing money at a competitive rate.”
Authorised overdraft interest rates
Over a third of those who said that they did know their authorised rate think they pay only 5 per cent interest on their overdraft – cheaper than the most competitive personal loan rate on the market. A further 32 per cent think they pay between 5 and 10 per cent.
In reality, MoneyExpert.com analysis shows banks charge on average 12.35 per cent for an authorised overdraft plus – but this was only cited by 12 per cent of respondents – 1.7 million people – as the rate they think they are being charged.
Unauthorised overdraft interest rates
The study also revealed that many people are ill informed about the cost of going overdrawn without permission. MoneyExpert.com says that while the average unauthorised rate is a hefty 25.62 per cent, some 5.2 million people believe that they are charged at 10 per cent or less.
Unauthorised overdraft fees
Some 18 million people also admitted to being completely unaware of the charge their bank levies if they exceed their overdraft limit. One in seven of these had made a successful claim for a refund of charges against their bank yet still don’t know.
A further 5.5 million people think they are being charged less than £20, but with the typical charge around £28 they are probably mistaken.
Gardner said: “It’s obviously important for people to understand the consequences of going overdrawn. While it’s ultimately the customer’s responsibility to avoid going beyond their overdraft limit, banks should make their charging structures more transparent. They could also provide a clearer indication of when customers are close to going in the red.
“With recent changes in the Banking Code it’s now easier than ever to switch current accounts, so if you’re unhappy with your bank you should consider jumping ship. It’s also important to realise that other forms of borrowing can be considerably cheaper than going overdrawn – for example zero per cent credit cards and personal loans.”