Lloyds Top In Overdraft Shame
Watchdog attacks the bank’s £165 charge for falling into the red
Lloyds TSB was named last week as the worst offender for punishing customers who fall briefly into the red.
Those in the Lloyds TSB Classic Plus account who exceed their agreed overdraft limit by £50 for two weeks are charged £165, finance website Moneynet.co.uk reports. This compares with HSBC’s £25.10 charge and £30.52 by Barclays. Alliance & Leicester, second after Lloyds, charges £95.
A damning report by the Office of Fair Trading (OFT) last week said that banks rake in about £8.3 billion from current account charges. The charges are equivalent to £152 per account and represent greater income than savings and credit cards combined.
The report also accuses banks of being opaque about how they derive revenue from accounts, confusing customers and making it difficult to compare deals.
The report says banks make almost twice as much from paying poor in credit rates to customers than they make in levying charges. Income generated from not paying higher rates of interest is estimated at £4.6 billion, while charges associated with insufficient funds are £2.6 billion, it says.
First Direct, Barclays and the Co-op do not pay interest on current accounts, while Royal Bank of Scotland and NatWest pay only 0.1%.
Michelle Slade, analyst at Moneyfacts.co.uk, the comparison site, said: “The fact that these institutions pay no or little credit interest is disgraceful. With inflation as high as it is, anyone with money with these banks is effectively losing money.”
The best interest rate is Alliance & Leicester’s Premier Direct account. It pays 8.19% on balances up to £2,500 but 0.1% on sums above this. At least £500 has to be paid into the account each month.
Cahoot pays 3.69%, the highest in-credit interest rate without any catches. If you want a chequebook with the account, the rate is 3.59%.
Bank charges for those regularly in the red rose by 17% between 2003 and 2007, the OFT reported. About 12.6 million accounts, or 23% of UK accounts, incurred at least one unauthorised overdraft charge in 2006. Such people should choose an account with a low overdraft rate. Norwich & Peterborough building society offers 0% on authorised overdrafts for six months, then charges 7.74%.
Most bank customers are unsure how bank charges work. Moneyexpert, a comparison website, said 71% of customers described bank charges as unclear. Only 17% understood the charges.