Customers of Barclays will face a change in the way the bank charge for overdrafts. With the use of an overdraft just another means of borrowing, the question is, how do you use your overdraft and how can you avoid it?
Changes to Barclays Overdrafts
From June 16th, 2014, Barclays customers can expect changes to the fees charged for their overdrafts. The changes are designed “to make banking more straightforward and easier to manage.” For new customers, Personal Reserves will be a thing of the past with the introduction of Emergency Borrowing wherein it will cost you for the days you use it.
Currently, Barclays customers are charged an interest rate of 19.3% EAR with an extra £22 for every five consecutive working days that you are in breach of your limit. The new system will see £5 per day charges and a maximum of £35 each month if you exceed your limit.
Changes have also been made to transaction fees. A new limit on you unpaid transaction fees means that when you don’t have enough money in your account and Barclays return something as unpaid, you will face a maximum cost of £8 in a day, compared to the current maximum of £40. For the times when you don’t have enough money in your account and Barclays pay it for you, the charge is currently up to £40 per day and from June 16th will incur no fee, though charges per day once over your limit will apply.
The Positives and Negatives
If you’re someone constantly in and out of your overdraft you will need to take control of how much. The new charges mean that it will cost more if you regularly use your overdraft. If you are over £2,000 into your overdraft you will pay £1,095 a year in charges. Even at £500 you will face charges of £274 a year, compared to the current fees of £97.
On the brighter side, if you’re someone who dips into your overdraft once in a while for minor spends, with the new buffer there will be no charge for up to £15. With a cap of up to £35 per month on remaining in your overdraft beyond six consecutive days, you will save with Emergency Borrowing, compared with the current maximum of £110 per month of your Personal Reserve.
Avoiding overdraft fees
The question is, how do you use your overdraft? It is important to remember that the use of your overdraft is essentially another way of borrowing money; by spending beyond your limit you are using the bank’s money and a charge is applied as with any other borrowing, be it a fee or interest.
• Know your limit. Keep an eye on your balance. Take advantage of online and mobile banking, as well as text alerts that you can sign up to, warning when you get into that red zone.
• Treat your overdraft like borrowed money. Aim to pay off your overdraft, rather than letting it linger. Set yourself a goal each month to pay back a certain amount of your negative balance, and once it’s in there – leave it!
• Make other arrangements. If your bank won’t extend your arranged overdraft, consider turning it into a loan so that you owe the loan provider rather than your overdraft provider. This will mean getting out the calculator and weighing up the cost of your overdraft against the cost of a loan.
• Compare the market for bank accounts. If it is an option to change bank accounts, make sure you compare the market first.