Overdraft fees to be capped

May 22, 2016 by Andy Crow

Overdraft fees to be capped

Overdraft fees are to be capped as part of a package of measures set out by the competition watchdog that will save customers £1bn over five years.

However, the Competition and Markets Authority has refused to ban “free-if-in-credit” accounts, which so-called challenger banks say hides the true costs of banking.

The CMA said that if personal customers switched to a cheaper product, annual savings could range from £89 an average for customers who do not use an overdraft to £153 on average for overdraft users.

Unarranged overdrafts are particularly lucrative for banks generating £1.2bn from such fees in 2014, when banks generated £14bn in revenue from small businesses and personal current accounts.

In a market where it is notoriously difficult to compare the accounts on offer, the CMA is proposing that customers receive more information about their accounts and that banks make it easier for customers to compare the accounts on offer.  The “Big Four” banks control 77% of all current accounts.

But Alex Neill, director of policy and campaigns at Which?, said: “After 18 months this inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago. Steps to stimulate switching are welcome but the chance to deliver better banking for call consumers has been missed”.

The reality is that customers rarely move their accounts: nearly 60% of personal customers have stayed with the same bank for over 10 years and over 90% of small businesses get their business loans from the bank where they have their current account.

There are better banking terms available if you look for them. Challenger banks are offering very competitive rates on both current and business accounts, so it’s worth a look.

If you would like any further information please contact Chorus Business Advisers on 0845 867 1263 or email info@chorusadvisers.co.uk