There's no such thing as free banking. Banks tend to make their money from various fees and charges which pay for the overheads of the 'free' services they provide, whilst at the same time making interest from having access to the cash that other customers has saved. Here we take a look at the various different fees and charges you may face at some point with your bank...
Unauthorised overdraft fees
These are pretty much the most costly type, and occur when your account goes overdrawn with no existing overdraft agreement in place. There are several types and they can stack up considerably for each day that you're overdrawn, resulting in hundreds of pounds each month in charges. If you run the danger of becoming overdrawn, speak to you bank and arrange an agreed overdraft which will be far cheaper for you.
Monthly or daily maintenance charge
When into an unauthorised overdraft banks will charge a maintenance charge on a daily or monthly basis. If your bank does it monthly, you're likely to have to pay £20-£30 each month for use of the overdraft, as well as interest for the borrowed amount on top. If your bank goes for the daily option, you will be charged a daily fee for being overdrawn, although this charge will be lower and stack up. There are caps on how much banks can charge now, but the fees can still be pretty steep.
These are charged separately for each transaction that involves the unauthorised overdraft. For example if you have a debit due but it will leave you overdrawn, the bank will process you a transaction then charge you a paid-item fee for the privilege of lumbering you with an unauthorised overdraft
Unpaid-item fees/return charge
If your bank refuses to process a payment due to you being or going overdrawn you'll be charged an unpaid-item fee to compensate them for their wasted admin time (even though it's all automated). The amount can vary depending on provider and the size of the rejected transaction.
Foreign Transaction Fees
Most banks attach a fee for making transactions with your card abroad. They can hit you with one or more of these:
- Currency exchange fee, normally around 2.75% of the withdrawn amount
- Set charge for cash withdrawals
- Set charge for processing card transactions by debit
Same-day transfer fees
Most banks offer same-day transers for free now since implementing the Faster Payment Service (FPS). However some banks still use the Chaps transfer system which involves a processing fee, or they impose limits of how much you can transfer, leaving you to transfer (and pay) the rest via Chaps if your need is urgent enough.
Packaged Account Fees
Packaged accounts normally charge customers a fee of somewhere around £5-£25 in exchange for a number of benefits and free incentives. Normally you'll be offered free products such as travel insurance, or breakdown cover to entice you in, but generally packaged accounts are worth considering.
Each bank varies on what it charges for and how much it charges, but you can normally guarantee some kind of hidden fee somewhere. Here are a common list of other charges which you can expect to pay between £5 - £30 for:
- Cancelling a cheque
- Obtaining a bankers draft
- Obtaining copies of historical statements
- Obtaining copies of paid cheques
- Requesting a reference
- Wiring funds to accounts overseas (and receiving)