UK bank plans to reduce overdraft fee significantly and offer customers free alerts

News - Banking

Written by Ray Clancy

Thursday, 24 June 2010 12:30

A leading UK bank is to significantly reduce its overdraft fees in a move that also gives customers alerts when they are reaching their limits.

Yesterday Lloyds TSB announced it is introducing a new overdraft fee structure for all of its existing and new personal current account customers from 2 December. All customers who use an unplanned overdraft facility will pay less under the new structure, it said.

Almost 70% of customers who use an unplanned overdraft will pay less than half what they currently pay and all unplanned overdraft fees and charges for returned items will be significantly reduced.

Under the plan a new fee free and interest free buffer zone of £10 will be introduced for both planned and unplanned overdrafts. Customers will pay a new £5 usage fee if they use an overdraft, either planned or unplanned. Only one such usage fee will be payable in any one monthly billing period.

Customers will also be able to take advantage of the Mobile Banking service, which will be free for all customers from 2 December. The current monthly charge for this service is £2.50 and it is said that this will help customers avoid overdraft fees altogether as it offers alerts when a balance is within £50 of an overdraft limit. Customers can transfer money between eligible accounts using the mobile banking application

Those with an Added Value Account or Student Graduate account with an interest and fee-free overdraft arranged will not pay the £5 fee as long as they stay within the interest and fee-free amount.

The current fee structure will remain in place until December and all existing customers will receive a letter between July and the end of September with details about the new charging arrangements.

‘We have made a whole range of improvements to our charging structure, including a significant reduction in fees. All customers who use an unplanned overdraft facility will pay less under the new structure. Almost 70% of customers who use an unplanned overdraft will pay less than half what they currently pay,’ said Mike Regnier, personal current account director at Lloyds TSB.

Kevin Mountford, head of banking at moneysupermarket.com said those going into the red will be better off. ‘It is good to see further initiatives from a major player in the banking industry on overdraft charges and the reduction of fees will certainly help some customers.

For those who flirt with their overdraft every now again and keep under the £10 limit then the free buffer is helpful. If you go into the red without approval you will now be better off as the unplanned fee is being reduced from £15 to £5. The free mobile banking service can only be seen as a positive initiative which will help consumers manage their finances,’ he explained.

But he pointed out that those who go into their authorised overdraft will now pay an additional £5 for the privilege on top of the 18.9% interest already charged. ‘As ever, the devil is in the detail and consumers need to ensure they check the small print. It is important when choosing a current account to select one that will suit your needs otherwise you could end up paying for unnecessary costs,’ he added.