A guide to the most common bank fees

By UK CreditCards.com

Unfortunately, the cost of banking in the UK is not free. Many bank fees are avoidable. However, there are also a variety of fees that nearly all customers have to pay at some point.

fees

Here is a guide to the most common bank fees, along with tips on how to get around them.

1. Unauthorised overdraft fees
This is perhaps the most common fee you are likely to incur. An unauthorised overdraft fee is the charge applied by your bank when you exceed your overdraft limit or when you spend more money than is in your account. Depending on the circumstances, these charges can add up to hundreds of pounds in just one month.

Once you enter into an unauthorised overdraft, there are usually two charges applied: a maintenance fee and a default notice fee. These will vary between accounts. Some banks will apply a cap to the number of days a fee can be applied.

Here is an example of the charges applied for unauthorised overdrafts by three of the top UK banks and building societies:

(Note: These charges will vary between accounts. The figures shown are an example of the highest charges applied.)

Maintenance charge:

  • Royal Bank of Scotland: £6 per day.
  • Lloyds TSB: £5 to £10 per day.
  • Halifax: £5 per day.

Default notice:

  • Royal Bank of Scotland: £30 per notice.
  • Lloyds TSB: £5 per month.
  • Halifax: £10 to £105 per month.

In order to avoid these high fees, it is essential that you speak to your bank account provider as early as possible if you think you may exceed your overdraft limit. Your lender may place a temporary extension on the overdraft to cover your outgoings.

2. Paid-items fee
In situations when you have paid for a transaction via direct debit, standing order or with a debit card, but do not have sufficient funds in your bank account, the provider may cover the cost of the payment. If the bank or building society does cover this cost, you will have to pay a paid items fee along with an unauthorised overdraft fee.

3. Returned transaction fee
If your account provider decides not to process a payment, which would lead to an unauthorised overdraft fee, this may result in an unpaid item fee. This charge is also known as a returned transaction or returned item fee. There is usually a cap on the maximum number of fees the bank can apply to your account -- but this can still be very high.

Returned Transaction:

  • Royal Bank of Scotland: £6.
  • Lloyds TSB: £10.
  • Halifax: £10.

Cap:

It is always better to speak to your account provider if you know that you are not going to be able to meet prearranged payments.      

  • Royal Bank of Scotland: 6 times per charging period.
  • Lloyds TSB: 3 times per day.
  • Halifax: 3 times per day.

Maximum monthly fee:

  • Royal Bank of Scotland: £60.
  • Lloyds TSB: Approximately £900.
  • Halifax: Approximately £900.

4. Foreign transaction fee
If you are using your debit or credit card abroad, either to withdraw cash or make purchases, you will usually have to pay a fee. These fees could be a charge for using an ATM abroad, a purchase fee or a foreign exchange rate fee.

It is very difficult to avoid paying foreign charges, but, in some cases, prepaid cards can work out as a cheaper payment method.

5. Packaged bank accounts
Some banks and building societies offer packaged bank accounts which provide the customer with additional benefits in exchange for a monthly fee. Fees typically range between £5 and £25 per month, but the cost of the packaged bank account will vary between providers and the type of account you have.

The rewards and benefits on offer often include insurance products, such as travel, home and mobile phone cover, cinema tickets and High Street discounts. Sometimes you may be given better interest rates as well. Whilst these benefits can be useful, the cost usually outweighs the value of the benefit.

Monthly fee:

  • Royal Bank of Scotland: £8 to £24.
  • Lloyds TSB: £7.95 to £25.
  • Halifax: £15.

Benefits:

  • Royal Bank of Scotland: Various insurance policies, discounts on holidays and other leisure benefits.
  • Lloyds TSB: Various insurance policies and interest-free overdrafts.
  • Halifax: Various insurance policies and interest-free overdrafts.

Not all bank accounts are packaged bank accounts. Many banks and building societies also offer free bank accounts. If you have a free bank account, meaning that you do not pay a monthly fee, you will still be subject to the other penalty fees and charges applied.

6. Minimising fees
If you are looking to reduce the cost of UK banking, compare the range of free bank accounts and packaged bank accounts on offer.

Once your account is set up and active, ensure that you keep the account in credit and avoid entering an unplanned or unauthorised overdraft. It is always better to speak to your account provider if you know that you are not going to be able to meet prearranged payments.

In the event that you are short of money due to unexpected bills or another high expense, such as a holiday or a wedding, you may want to consider other forms of credit. You can speak to your bank account manager about loans or credit cards they are able to provide, or compare products online using a comparison tool.

See related: 4 locations that are infamous for pay-to-use ATMs; Study: Overseas ATM withdrawals costly

Published: 23 December 2011