Barclays is to significantly overhaul its current accounts in a move that will benefit the perennially overdrawn, but penalise the financially prudent.
From August 18, the UK’s third largest bank will scrap its current unauthorised overdraft fee structure in favour of a £22 "personal reserve" of up to £1,500.
The reserve will allow customers to carry out unlimited transactions over a five day period without incurring any penalties or seeing payments bounce, helping them avoid the current ‘charges on charges’ scenario.
Customers who opt out of the reserve, or simply exceed it, will see their transactions bounced and they will be hit with a flat £8 fee (up to a limit of five a day).
Cheaper charges are contentious
The fact that Barclays has been able to significantly reduce its unauthorised overdraft charges may well prove contentious. Remember that, as the court case on “unfair” bank charges rages on, the banks are sticking to the defence that these fees accurately represented the true cost of handling a bounced transaction.
Barclays reshuffle is likely to fuel further accusations of profiteering against the other banks.
Barclays is just profiteering elsewhere
Of course the reduction in unauthorised overdraft charges should not be viewed in isolation.
While those with chronic debt tendencies will no doubt benefit from the change, Barclays’ more financially prudent customers may well feel they are getting the short end of the stick, as the bank looks to target them for profits instead.
So what does it mean for you?
If you are always in the black, or you occasionally dip into your authorised overdraft, then the changes will be bad news for you.
First of all, the bank has scrapped credit interest on its standard current accounts completely. Admittedly it was only at 0.1% before, but at least it was something. What’s most annoying is that Barclays won’t admit it did so to compensate for lost revenue opportunities elsewhere.
Instead, the bank claims that “research shows customers don’t value it”. Well, I’m sure research would also show that customers don’t value being charged interest on overdrafts, but so far there’s no word on these being scrapped.
Far from it - rates on authorised overdrafts are being hiked significantly, from 15.6% to 17.9% from June 2, 2008.
Changes are significant
With the court case on “unfair” bank charges set to drag well into 2009, it is interesting that Barclays’ has decided to address its unauthorised overdrafts now.
This could indicate that the banks have decided that, for PR purposes, it’s better not to try and tough it out until the case is concluded.
It’s both good and bad news
With Barclays restructuring its charges, it’s likely that most of the other banks will follow suit before long, and it will be interesting to see whether they choose to replicate Barclays’ model.
If so, then there are reasons to be cheerful. Most important is the fact that Barclays has avoided slapping a monthly fee on its basic bank accounts, something many customers had feared. Note that this does not mean we have “free banking”: If it were free, banks wouldn’t be raking in billions of pounds in profit every year.
The main downside is the disappearance of credit interest. Barclays may claim customers don’t value it, but any chance to earn a few extra quid on our money is a welcome one, especially considering the impact that the credit crunch is having on our finances.
If you are in the fortunate position of never going overdrawn, why not switch to an account that rewards you for this - Alliance & Leicester is offering an impressive 8.5% on its Premier Direct current account.
