In essence, this means that they use the money generated from their tier of customers that use overdrafts or even loans. If you are applying directly for a basic bank account then no credit scoring is used. A small search will be made for verification though. Most generally run a search for CIFAS (fraud prevention). A flag here would almost certainly trigger a decline. Whilst there was a time when UK residency would be an essential requirement, the European Commission have passed a law that hands all European residents with the right to open a basic bank account in any EU country. This ruling isn’t set until September 2016 though.
There are a few alternatives that you could look towards. The most common option would be a prepaid card and then there are credit union current accounts. I would advise that the banking choice is the best option to proceed with. The qualifying age here would typically be 16 or 18. Identification will have to be issued to comply with money-laundering regulations (such as your passport and a recent Council Tax bill). Once approved, you should soon receive a debit card and you should be able to pay direct debits and standing orders. Account management would be offered online, but what you can do at a local branch is usually restricted.
This is of course a stripped down service and so there will be no overdraft facility or no interest paid on your balances. It is still possible to run up fees for unpaid transactions and so it will be important to manage your finances well. Some may offer a small buffer that adds some level of protection. It is worth pointing out that you can always climb the ladder to receive upgraded accounts. I have personally done this myself and it didn’t take too long before this occurred. It only makes sense that they’ll eventually want to make some money from you through borrowing. More info on overdrafts can be Found Here.
The costs can still be very excessive though and various Payday and Short Term Loan products work out much more affordable that highlights this. The unplanned overdraft charges were picked out from our 20 current accounts that were introduced in this Opening Post. This post covers our current account selection process in detail. The actual product names are headed there and we have also added them below if you mouseover the bank or building society name. When it comes to unauthorised borrowing, any limit would either be accepted at a cost or they would refuse this with an attached unpaid transaction charge. We will cover both pricing instances below.
Details:
We are going to use the example that a sample customer has an approved overdraft limit of £250 that has all been used. A £100 purchase has been made that has took the current account into the red that will last for 30 days. We will attach an approved example (✓) and a refused example (unpaid transaction fee = ✘). This account has been held for a full year and a monthly wage of £1000 is paid in monthly. We are calculating informal charges only and not the costs for the maxed out £250 limit. If an account includes a higher starting limit of say £500 (such as the M&S and Smile products) then we will still score them on the same £250 + £100 purchase. All interest is measured as EAR.
Results:
For our £100 purchase the cost range was £1.15 to £150. We received 19 prices since Barclays couldn’t cater our example. The prices were reasonable up to the 6th position (£6.43). When we moved down to #7 the cost jumped up to £25. Once we reached the #10 spot we saw all charges then head above £50. Your average payday lender would charge around £30/£100. A better way of attacking overdraft charges is to use short term lenders whereby you could pick the specific repayment (for around 1% daily). We have composed the rankings on acceptance, but it is also worth paying attention to those that attach no unpaid transaction fees.
Top 20 Unplanned Overdraft Charges:
1) Post Office: = £1.15
✓: The Post Office takes the top ranking with competitive 14.9% interest on unplanned borrowing that creates a small cost of just £1.15. I have a feeling though that they would commonly just return the item to collect a £15 fee.
✘: £15.
2) M&S: = £1.22
✓: You are started off with a £500 overdraft limit. The first £100 is free and the rest is charged at 15.9%. If you were to surpass £500 they would have a £50 buffer and following this they would just return any payment. Our client was fully protected by the initial limit and so just paid the interest.
✘: No fee.
3) First Direct: = £1.22
✓: A £250 limit is handed on signup that matches our client’s limit. The £100 purchase above this takes on interest at 15.9%. The first informal request in 6 months is free (others are £25). The £10 monthly charge saw a waiver due to £1000 per month being paid in.
✘: No fee.
4) Smile: = £1.43
✓: Smile issues a £500 limit on account opening that provides plenty of protection that our customer remained within. This is a complicated product. If you surpass £500 a £20 annual fee is triggered. Any change to the limit costs £20. If you were at the £500 and borrowed informally then a £20 charge would apply and another £20 would trigger each time this increases. Due to the standard limit, we would only be concerned with interest at 18.9%.
✘: £15.
5) HSBC: = £1.50.
✓: HSBC owns First Direct and so this product shares similarities. This includes the first informal request in 6 months being free. The interest rate is a little higher here though at 19.9%.
✘: No fee.
6) Tesco Bank: £5 + £1.43 = £6.43
✓: A £5 paid fee will be joined by 18.9% interest. This account costs £5 per month, but there is a waiver since only £750 needs to be paid in monthly.
✘: £5.
7) Coventry Building Society: = £25.
✓: This account includes a £250 limit that our client used up. The unauthorised fee was triggered by the £100 purchase at £25.
✘: £8.
8) CitiBank: £25 + £8 + £2.17 = £35.17
✓: There would be a £25 paid fee and this is joined by the £8 month account charge that we couldn’t waiver since at least £1800 each month had to be paid in. Interest would also be charged at 29.8%.
✘: £25.
9) The Co-operative Bank: = £20 + £20 + £1.43 = £41.43
✓: The Co-op is the team behind Smile and so the same characteristics are in place as above, with the critical exception being that the overdraft limit here is £200 (rather than £500). Our client had a £250 limit and so there was already a £20 annual fee for this change. The new £100 purchase also took on a £20 informal charge. There is also 18.9% interest.
✘: £15.
10) Clydesdale Bank: £25 + £25 + £2.18 = £52.18
✓: A £25 usage fee would be joined by a £25 daily paid fee and interest at 29.99%. This is also the case with their sister-brand below.
✘: £15.
11) Yorkshire Bank: = £52.18
✓: Same as above.
✘: £15.
12) Nationwide: = £60
✓: Since the account had been held for a year, we had already received the first 12 months at 0% here. There would be £5 daily fees imposed that would see a cap of £60.
✘: £5.
13) Bank of Scotland: £80 + £6 + £1.51 = £87.51
✓: Now that we have entered informal, we are charged £10 daily fees that are capped at £80. There is also a £6 usage fee and interest at 19.94%. These specs match Lloyds and TSB below (Lloyds owns all). BOS are listed first since we rank alphabetically.
✘: £10.
14) Lloyds Bank: £80 + £6 + £1.51 = £87.51
✓: Same as above.
✘: £10.
15) TSB: = £80 + £6 + £1.51 = £87.51
✓: Same as above.
✘: £10.
16) NatWest: = £90
✓: A £6 daily fee is enforced here that is capped at the figure of £90. The same applies to RBS below that is within the same Group.
✘: £6.
17) RBS: = £90
✓: Same as above.
✘: £6.
18) Halifax: = £100.
✓: Whilst the £50 buffer (when agreed) is notable we had a limit of £250. Now that we have entered unplanned we are hit with £5 daily fees. There is no confirmed figure on the cap, but from running through their site it does appear that they stop at £100.
✘: No fee.
19) Santander: = £150
✓: Daily fees of £6 are charged and there is an overall monthly cap at £150. There is also a £10 paid fee, but this doesn’t matter here as we would have already maxed out £150. Santander only recently updated their costs and so you would expect competitive new rates, but they have performed poorly in each comparison ran here.
✘: £10.
Barclays: = NA
✓: Not available. When using their calculator Emergency Borrowing was only available for overdrafts of £700 and above. They would just return our transaction at £8. Just for reference purposes, Emergency Borrowing has a £5 daily charge capped at £35 over the month.
✘: £8.
Last Updated: September 2014.
Details:
In this example we will assume that £100 has been borrowed for the period of 30 days. This account has been held for a full year that rules out any switch bonuses. Wages are paid in at £1000 each monthly period. Just to expand on our selections here. We have covered most of the major banks and a few building societies (we may add more in time). We ignored any “Basic Banking” accounts that tend to have no borrowing facility attached. We moved on to any free account that offered this. If it so happened that the only option was a paid offering then we would add this so long as it was possible to waiver the charge when you pay X amount of cash in each month.
Results:
The results from these findings saw charges ranging between £0 and £30. This most expensive monthly charge of £30 per £100 is interestingly what a decent Payday Lender would ask for. The high costs were only seen late on though. The 16th price was £8 and the 17th jumped right up to £15. The specific names of each account (with added details) are listed in this Opening Submission. You can also view the name when you mouseover the specific bank or building society title below.
Top 20 Planned Overdraft Charges:
1) Coventry Building Society: = £0.
✓: The first £250 is free that hands The Coventry Building Society with the top ranking.
2) First Direct: = £0.
✓: As above, the first £250 is free. The monthly account charge is £10 (that knocks them down). This doesn’t need to be paid by our borrower since they pay £1000 in and so they get a waiver.
3) M&S: = £0.
✓: The first £100 is free and so a 3rd spot is taken based on this sum being lower than £250.
4) Clydesdale Bank: = £0.78.
✓: You just need to pay a competitive rate of 9.9% here with Clydesdale.
5) Yorkshire Bank: = £0.78.
✓: YB is in the same family as Clydesdale and this product is matched.
6) Post Office: = £1.15.
✓: All that’s required here is interest at 14.9%.
7) Smile: = £1.43.
✓: A £500 limit is granted when you open the account and you only 18.9% on this.
8) The Co-operative Bank: = £1.43.
✓: The Co-op is the team behind Smile and so as expected the same costs apply. The overdraft limit is smaller here though that stands at £200.
9) Tesco Bank: = £1.43.
✓: Our borrower pays in more than £750 and so there is a waiver on the £5 monthly charge. Due to the cost without the waiver, they rank behind The Co-op who they would have ranked above alphabetically. The only cost that needs to be paid on the overdrawn sum is 18.9%.
10) HSBC: = £1.50.
✓: There is just a charge of 19.9% to be paid to the UK’s market leader.
11) Bank of Scotland: = £6 + £1.13 = £7.13.
✓: We start off with the £6 usage fee. With the first £25 being free, just £75 is charged at 19.94%.
12) Lloyds Bank: = £7.13.
✓: This is matched to above (Lloyds of course owns BOS).
13) TSB: = £7.13.
✓: TSB is also matched to BOS and Lloyds above.
14) NatWest: = £6 + £1.50 = £7.50.
✓: A £6 usage fee is joined by interest at 19.89%.
15) RBS: = £7.50.
✓: This cost is matched to NatWest (RBS is their owner).
16) CitiBank: = £8.
✓: The first £500 is free. However, all CitiBank accounts have a monthly price tag. You need to pay in £1800 each month here that our borrower couldn’t meet and so we factored a monthly fee of £8.
17) Nationwide: = £15.
✓: You get 0% for the first 12 months, but our borrower has already been a customer for a full year. This means that the £0.50 daily charge has to be paid.
18) Barclays: = £22.50.
✓: You would pay £0.75 each day with Barclays.
19) Halifax: = £30.
✓: Once you surpass the £50 buffer, you would be charged a pound each day.
20) Santander: = £30.
✓: Santander matches Halifax with the same daily fee.
= Last Updated: September 2014.
Some banks field several accounts, but our focus shifted to free current accounts with an overdraft facility. We skipped any Basic Bank Account since these don’t commonly allow you to borrow. When there was no suitable selection, we went with any package with a monthly fee, so long as you could waiver this when paying a certain level of cash in. On this page we will present our findings listed alphabetically. Rankings will be composed in follow up posts when we will score each based on the charges for planned (Here) and Unplanned Overdrafts. We will also look at the best switching bonuses and those that pay interest on your balances.
Note: The percentages = AER.
Once comparisons have been made we can pick out the UK’s best current account.
1) Bank of Scotland Classic Account = (First £25 at 0%)
Planned: £6 usage fee and 19.94%
Unplanned: £10 buffer | £6 usage | Daily: £5 (>£24.99) and £10 (£25+) | 19.94%
Transactions: £10 (unpaid)
Caps: No more than 8 daily fees
(Notes: Same features as Lloyds below).
2) Barclays Bank Account = (Buffer for first £15)
Planned: Daily: £0.75 (>£1000), £1.50 (>£2000), £3 (£2000+)
Unplanned: £15 buffer | £5 daily (Emergency Borrowing)
Transactions: £8 (unpaid)
Cap: Emergency Borrowing is capped at £35
Notes: This facility was only available for amounts of £700 and above on their overdraft calculator. Without this facility, the items will just be returned.
3) CitiBank Citi Plus Current Account = (Free or £8 monthly*) (First £500 at 0%)
Planned: 16.9%
Unplanned: £10 buffer | 29.8%
Transactions: £25 (paid and unpaid)
Cap: No more than 4 charges
(Notes: Pay in £1800 per month to avoid the £8 fee*. There is a setup and annual renewal fee of 0.5% of the limit for amounts above £500).
4) Clydesdale Bank Current Account Direct
Planned: 9.9%
Unplanned: £25 buffer (see notes) | £25 usage fee and £25 daily | 29.99%
Transactions: £15 (unpaid)
Cap: not disclosed
(Notes: The buffer is assumed to protect you from the £25 usage and the following £25 fees that are charged each day you make another payment in the red. However, they do not clarify this on any of their pages. You need to pay £1000 in each month here. You receive 2% on your balances up to £3000).
5) Coventry Building Society Coventry First = (First £250 at 0%)
Planned: £5 usage fee
Unplanned: £25
Transactions: £8 (unpaid)
Cap: Transaction capping unknown
(Notes: Interest is paid on your balance. This covers 1.1% in the first year and 0.25% in the second. This assumes that you pay £1000 in each month. Otherwise you earn 0.95% and then 0.1%).
6) First Direct 1st Account = (Free or £10 monthly*) (First £250 at 0%)
Planned: 15.9%
Unplanned: £10 buffer | 15.9%
Transactions: £25 (paid)
Cap: No more than £150
(Notes: Pay in £1000 per month to avoid the £10 fee*. The first informal request (£25) in 6 months is free. There is a setup and annual renewal fee of 0.5% of the limit for amounts above £500. Bonus £100 when you switch).
7) Halifax Reward Current Account = (Buffer for first £50)
Planned: Daily: £1 (>£1999.99), £2 (>£2999.99), £3 (+£3000)
Unplanned: £5 daily
Transactions: NA
Cap: No confirmed cap (estimated at £100)
(Notes: The Reward package earns you £5 each month so long as you pay in £750, pay out two direct debits and stay in credit. Bonus £100 handed when you switch).
8) HSBC Bank Account
Planned: 19.9%
Unplanned: £10 buffer | 19.9%
Transactions: £25 (paid)
Cap: No more than £150
(Notes: The first informal request (£25) in 6 months is free. The HSBC Premier is an improved offering that includes the first £500 at 0% on overdrafts. However, a £100,000 income is required here alongside holding another product such as life insurance or a mortgage).
9) Lloyds Bank Classic Account = (First £25 at 0%)
Planned: £6 usage fee and 19.94%
Unplanned: £10 buffer | £6 usage | Daily: £5 (>£24.99) and £10 (£25+) | 19.94%
Transactions: £10 (unpaid)
Caps: No more than 8 daily fees
(Notes: Same features as Bank of Scotland).
10) M&S Current Account = (First £100 at 0%)
Planned: 15.9%
Unplanned: £50 buffer | 15.9%
Transactions: NA
(Notes: You are provided with an automatic £500 overdraft when you join).
11) Nationwide FlexDirect = (First 12 months at 0%)
Planned: £0.50 daily
Unplanned: £10 buffer | £5 daily
Transactions: £5 (unpaid)
Caps: No more than £60 (fees) and £35 (unpaid)
(Notes: The £0.50 charge is still paid within the buffer. FlexDirect offers 5% on your balances up to £2500 in the first 12 months that later drops to 1%).
12) NatWest Select Account = (Buffer for first £10)
Planned: £6 usage fee and 19.89%
Unplanned: £6 daily
Transactions: £6 (unpaid)
Cap: No more than £90 (fees) and £60 (unpaid)
(Notes: This product mirrors the featured RBS account below. The RBS Group of course owns both).
13) Post Office Standard Account
Planned: 14.9%
Unplanned: 14.9%
Transactions: £15 (unpaid)
Cap: Transaction capping unknown
Notes: NA.
14) RBS Select Account = (Buffer for first £10)
Planned: £6 usage fee and 19.89%
Unplanned: £6 daily
Transactions: £6 (unpaid)
Cap: No more than £90 (fees) and £60 (unpaid)
(Notes: The unauthorised fees are triggered when you surpass £6. This isn’t really a buffer though since you can still be hit with an unpaid fee).
15) Santander Everyday Current Account
Planned: £1 daily
Unplanned: £6 daily
Transactions: £10 (paid and unpaid)
Cap: No more than £150
(Notes: Both planned/unplanned essentially have a £12 buffer, but you are still charged for unpaid transactions throughout. You may wish to consider their 123 package that pays cashback and interest at 3% on balances between £3000 and £20,000. We didn’t feature this as there is a £2 monthly price tag. A switch is available that hands you with a 0% overdraft for the first 4 months).
16) Smile Current Account
Planned: 18.9%
Unplanned: £20 usage fee and subsequent £20 fees | 18.9%
Transactions: £15 (unpaid)
Cap: No more than £150 per quarter
(Notes: Most of the features here match the Co-operative product below. This offering differs by not having any minimum income requirements and you are also handed with a larger £500 overdraft. This means that the £20 charges are not imposed until you surpass the £500 limit.
17) Tesco Bank Current Account = (Free or £5 monthly*)
Planned: 18.9%
Unplanned: 18.9%
Transactions: £5 (paid and unpaid)
Cap: No more than £50
(Notes: Pay in £750 per month to avoid the £5 fee*. You earn 3% on your balances up to £3000).
18) The Co-operative Bank Current Account Plus
Planned: 18.9%
Unplanned: £20 usage fee and subsequent £20 fees | 18.9%
Transactions: £15 (unpaid)
Cap: No more than £150 per quarter
(Notes: If you surpass the £200 starting limit, overdrafts will cost £20 every 12 months. Any requests for changes incurs a further £20 charge. This is the same amount that they take for the usage and subsequent increases when you are in the unauthorised zone. There is a waiver if your borrowing lasts 6 consecutive days or less and you haven’t requested an informal overdraft within 366 days. You must pay in £800 per month. You receive £100 and £25 is sent to charity when switching).
19) TSB Classic Plus = (First £25 at 0%)
Planned: £6 usage fee and 19.94%
Unplanned: £10 buffer | £6 usage | Daily: £5 (>£24.99) and £10 (£25+) | 19.94%
Transactions: £10 (unpaid)
Caps: No more than 8 daily fees
(Notes: The TSB Classic Plus also comes with 5% on balances up to £2000 so long as you pay £500 in each month. This is all that differentiates this product to the featured Bank of Scotland and Lloyds listings. Lloyds still part owns TSB).
20) Yorkshire Bank Current Account Direct
Planned: 9.9%
Unplanned: £25 buffer (see notes) | £25 usage fee and £25 daily | 29.99%
Transactions: £15 (unpaid)
Cap: Not disclosed
(Notes: The product details are matched to the Clydesdale Bank above).
Data Correct at August 2014.
There is one single current account available that is called the Coventry First. You need to deposit £1000 each month to receive their headlined interest rate of 1.1% AER in your first year. Otherwise the rate provided is 0.95%. The first year bonus is 0.85% and so this should follow as 0.25% (when paying £1000 in) or 0.1% on your balances in the following years. For the Coventry Building Society overdraft charges, you are initially handed with £250 interest-free. When this is surpassed there is a £5 monthly usage fee within an agreed limit. For unauthorised borrowing this fee is priced at £25 over the month.
If there are any transactions that are returned here then the unpaid fees come in at £8. This account can be fully managed through www.coventrybuildingsociety.co.uk and their telephone advisors can be reached every day with telephone self-service also being available 24/7. They have developed their products in such a way that it doesn’t matter so much if you have no local branch. The Coventry overdraft charges are quite straight forward and well priced so long as you don’t step into the red. Their first year interest at 1.1% is ok, but Nationwide’s FlexDirect grants 5% in the first 12 months (it then lowers to 1%).
They each include interest-free overdrafts at £500 that is notable, although if you forget to credit your account with a minimum of £1250 over the month then they will quickly remove this facility. Should you go on to borrow a higher amount than £500 then the rate with Plus is 16.9% EAR and 9.9% with Gold. There is a setup and annual renewal fee of 0.5% of the overdraft limit over £500 for the Plus. There is a small £10 buffer and then unarranged interest will trigger at 29.8%. Any paid or unpaid transaction will cost £25, but there is a cap at 4 each period.
You can fully service your account through www.citibank.co.uk. The Citibank overdraft charges headed here may be set well, but you do have to pay for each product unless you meet strict criteria. It is surprising that despite the price tag, there aren’t any noticeable features in place. Neither for instance grants you interest on your balances. This bank is highly established in their home country and they have expanded impressively internationally. Specifically here in the UK, they haven’t emerged to trouble the big names to date. They have 200,000 local customers across their product range. They have just a few UK branches that are strategically placed across London.
Borrowing costs £20 each year above £500. Any changes to your limit also attracts a £20 fee. If you head into informal borrowing then a £20 usage fee applies and should this increase the same fee shall follow. Unpaid items cost you £15. As at the central brand they have their waiver in place that protects you if the overdrafts last six consecutive working days or less and you haven’t requested informal overdrafts within the previous 366 days. This means that you can escape being penalised if this is your first time. If you have been in difficulty before and fall in deep then there is fortunately a quarterly cap of £150.
A Smile login is provided at www.smile.co.uk and you can also pick up their mobile app. If you need assistance then their call centre is open 24/7. There is a great incentive to switch over to them today. They currently offer £100 to you and £25 is directed to a charity. The discussed Smile overdraft charges are aided by that £500 limit that is higher than what you will receive through the Co-op accounts. You can also pay in cash and cheques at their Group’s large branch network. You do not receive any interest on your balances though that is one of the single product limitations.
Cash Account is a starting product that includes no facility for overdrafts. There are a few other offerings with Student being notable for its interest and fee-free deal. We are really interested here in the Bank of Scotland overdraft charges for their Classic Account. This is interest-free up to £25 and then there is a £6 monthly usage fee alongside 19.94% EAR. There is a £10 unplanned buffer and then past this into unplanned you pay £5 a day below £25. Then above this the cost goes up to £10 daily. The cap is 8 daily fees per month. There is also an unplanned £6 usage fee and 19.94% interest. For a returned item you pay £10 each time.
You can add on their Control option that has a £10 monthly fee and this carries protection over the fees usually charged in the red. You can make adjustments once logged into your account at www.bankofscotland.co.uk. The Bank of Scotland overdraft charges are set to essentially match Lloyds. If you only use overdrafts on the odd occasion for small amounts and want more protection then the Halifax Reward product has a £50 buffer. If you surpass this then the Reward works out more expensive. The choice of BOS would be preferential to Scottish residents based on branch proximity, but otherwise there isn’t any distinguishable feature over their sister-brands.
If we start with their new offering, this carries no monthly fee. It includes an automatic £500 overdraft on opening and the first £100 is free with the following borrowings being charged at 15.9% EAR. Buffer protection at £50 is also included. No other fees are imposed. If you do surpass the buffer then they would in most cases refuse the payment. They merely state that this could damage your credit score. A banking customer login is provided at www.marksandspencer.com and they have setup 29 Bank branches (within a selection of their existing stores) that are open on evenings and weekends that helps to differentiate them.
The Premium account is no different when it comes to overdrafts. This comes with a £10 per month price tag though. This includes a range of vouchers that surpasses the value of the fees paid in (mostly for Café drink coupons). This can also be upgraded with travel insurance that totals £17.50 monthly. It is good to see that they also reward those that switch with a £100 gift card (an extra £50 is included with Premium when you open the account). The M&S overdraft charges are impressive, but you have to remember that this is essentially a HSBC-branded package. You also receive no interest on your balances.
Control costs £5 per month and this is marketed at those who have a history of constantly being in the red resulting in excessive fees. This can be avoided here since there are no unpaid transaction fees, but you as noted pay £5 each month. The primary product is the Standard Account that is free. Its interest rate on overdrafts is 14.9% EAR. There are no unauthorised Post Office overdraft charges. When going over, it is likely that they will just bounce back unpaid items with a £15 charge each time. With no buffer protection you can imagine it being easy to pick up these penalties if you aren’t careful.
Although the banking products are headed on the central domain, the online banking is managed at www.postofficeonlineaccount.co.uk. There is as noted an upgrade available that is called the Packaged Account, but this is for holders of the Standard only. This has an £8 monthly fee and it is built with add-ons such as breakdown cover and travel insurance. The main product in focus has a good overdraft rate, but there aren’t many notable features such as there being no interest paid on your balances. One such benefit is that there are 11,500 branches and so there is always going to one in close proximity to your home.