High street banks charge hundreds of pounds more in overdraft fees than First Direct, Monzo and Starling – how to avoid being stung
On average, high street banks charge customers in their overdraft by £285 for 30 days a month more than £150 a year, compared to First Direct customers who pay less than £50
All recommendations within this article are informed by expert editorial opinion. If you click on a link in this story we may earn affiliate revenue.
MILLIONS of Brits who have current accounts with high street banks could be wasting more than £150 a year on arranged overdrafts.
Big banks are charging customers over 50 times more than smaller challenger ones when the account holder goes into their arranged overdraft, new figures from uSwitch reveal.
Brits rely on their overdraft to plug a £285 shortfall for around nine days a month, according to the switching website.
On average, consumers are paying £56.52 every year to their high street bank in overdraft fees and interest rates, compared to customers of the cheapest challenger provider, First Direct.
The bank, which has no branches, offers interest and fee free overdrafts of up to £250.
First Direct customers who are in their overdraft by £285 for nine days a month will be charged as little as £1.56 compared to the most expensive high street banks, Santander and Barclays who charge £81.
Why should I switch bank accounts?
NOT sure what switching could do for you? Here's what you need to know:
- Switching is easy. Under the switching service, swapping banks should take seven working days. That includes all your payments, direct debits and standing orders being moved too. Just open your new account and then ask your new provider to close your old account using the switch service.
- Make sure you are eligible. Most accounts have certain requirements, such as paying in a minimum amount of cash each month.
- Watch your overdraft. Check your new bank will offer you the same limit — and does not have higher costs for using it.
Lloyds, Halifax and Bank of Scotland are the third most expensive providers and demand £43.56 from account holders for the same amount over the same period of time.
On average, high street banks charge customers in their overdraft by the same amount over 30 days a month up to £153.11 a year, compared to First Direct account customers who are only expected to pay £48.96.
Now, the comparison site is urging customers to switch current accounts to avoid being hit with extra overdraft fees and save up to £153.11 a year.
Tashema Jackson, money expert at , said: "Crucially, banks could and should be doing more to help their customers ensure they are getting the best deal possible.
"Far too many aren’t aware what their overdrafts are actually costing them or that they can to a cheaper provider while overdrawn.
"There are options around to help cover household spending while you wait for payday, or provide you with a safety net in case of emergency, but it is always important to check the terms and conditions of any credit agreement you sign up to.
MOST READ IN MONEY
"Knowing what the penalties are should you miss a repayment and understanding the impact on your credit rating are essential before taking out any form of borrowing."
City watchdog the Financial Conduct Authority (FCA) warns that the way banks charge for overdrafts needs "fundamental reform" and have already announced proposals to make costs more transparent.
A spokesperson added: "We are also looking at more radical options to ban fixed fees and end the distinctions around unarranged overdraft prices. We will publish our results before the end of the year."
A spokesperson for Santander pointed out that the bank has specialist tools to help customers manage money and that their' overdraft charges are "clear, transparent and easy for customers to understand."
The Sun has contacted Lloyds, Halifax, Bank of Scotland for comment. UK Finance, who represent all banks, and Barclays did not wish to comment.
Thinking about switching? NatWest is giving £215 to new and existing customers who switch their current account to the bank, but you only have until December 3 to cash in.
If you're not tempted then you can check out which banks are the ones that most people switch to.
Last month, investment bank Goldman Sachs launched new bank 'Marcus' offering the highest paying savings rate on the market.
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at [email protected] or call 0207 78 24516. Don't forget to join the for the latest bargains and money-saving advice.