Overdraft sting by greedy banks

12m in the red are hit for up to £87 a year

UP to 12million people are being stung for rip- off overdraft charges of up to £87 a year by big banks, a study suggests today.

Major lenders are typically charging fees 50 times higher than the best rates on the market. The worst offenders charge even more.

It is estimated customers could be paying a staggering £640million in unnecessary fees.

Many of those affected are middleclass families who accidentally run short before payday or temporarily use an overdraft to cover unexpected bills.

Critics said the figures were proof of how the big banks penalise loyal customers, with families hit by punitive charges for dropping briefly into debt.

The Uswitch study found as many as 12million customers go into an authorised overdraft each month, spending an average of nine days in debt and going £285 over their limit. Banks typically charge a high interest rate and daily or monthly fee to overdrawn customers – and these charges can quickly mount up over the course of a year.

Uswitch said the average high street bank charges £56.52 a year for a customer who uses a previously agreed overdraft. This is more than 50 times higher than the fees billed by HSBC- owned First Direct, which charges only £1.56.

At Natwest- owner Royal Bank of Scotland, the charge is £87.36. RBS was bailed out with £46billion of taxpayers’ money after helping to cause the financial crisis in 2008 and is still majorityowned by the state. The next worst offender is TSB. Users of its Classic account pay an average £85.44 a year in fees, according to Uswitch.

The figures will spark fresh fears that Britain’s banking market is broken and more must be done to encourage customers to shop around.

Labour MP Wes Streeting, a member of the Treasury select committee, said: ‘Customers deserve better than rip-off rates from their banks.

‘In spite of all the lip service, we still do not have a banking system that promotes active competition and consumer switching to benefit customers.

‘It seems too many banks are still hoping to prey on unwary shoppers.’

Tashema Jackson, of Uswitch, said: ‘Overdrafts are an absolutely essential part of consumers’ everyday finances.

‘But the associated charges seem to be accepted as a necessary cost – when they do not need to be at all. Some banks offer interest-free overdrafts, while others charge no fees for using one. Banks could and should be doing more to help their customers ensure they are getting the best deal possible. Far too many aren’t aware what their overdrafts are actually costing them or that they can change to a cheaper provider while overdrawn.’

Justin Modray, of consumer advice group Candid Money, said: ‘We’ve seen an overhaul of the market in recent years, but these figures suggest that fees are still prohibitively high. This is still a massive cash cow for the banks.’

Liberal Democrat leader Sir Vince Cable, said: ‘The big banks still dominate the high street. These figures just show that old practices die hard.’

It comes after a crackdown on overdraft fees by the Financial Conduct Authority which said last night it was looking at ‘more radical options’.

An RBS spokesman said: ‘We offer arranged overdrafts to help customers with their day-to-day expenditure and have a simple and clear pricing structure which is easy to understand.’

TSB said: ‘Many customers find an overdraft helpful in managing their money. However, overdrafts are not designed to provide a long-term loan.’