UK Banks Charge Customers To Avoid Overdrafts

What's Next In Payments®
4:40 PM EDT January 28th, 2013

Sister bank Clydesdale Bank and Yorkshire Bank have come up with a new account which lets customers avoid those pesky overdraft charges. The two banks created a current account which stops payments such as direct debits to let the customer avoid being charged for an overdraft. This service does not come for free, costing a hefty £15 a month.

On its website, Yorkshire bank explains: “With this account, payments such as monthly standing orders and Direct Debits for bills and household expenses can be unpaid if paying them would take you into unplanned borrowing. That could include important payments such as your mortgage or insurances.” They add that, “The Current Account Control works just like a traditional current account. The difference is that, for £15 a month, the account usually stops payments being processed that would incur unplanned borrowing charges.”

Even if it seems contradictory to pay to avoid being charged, banks could argue they are following the advice of the Office for Fair Trading. The OFT advised banks to offer customers the possibility to opt out of unauthorized overdrafts, to avoid unwanted charges.

Other banks have done the same and offer similar services at different rates, even if they do not advertise it in the same way as the two other banks do. Nationwide is the only bank in the country that offers this service for free. The bank simply does not authorize any payments if the customer has no funds in their account or has exceeded their overdraft limit.

While the service might seem unnecessary, for some it could save more than a few pounds. In a country like the UK unauthorized bank charges are high. For Clydesdale and Yorkshire Bank the fee is £35 if the banks do not take payment from a customer’s account for lack of funds. The same goes for Natwest and other British banks, which charge similar fees.

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