Alliance & Leicester change overdraft policy

Lavendyr · 22 September 2007 at 8:57AM

http://news.bbc.co.uk/1/hi/business/6992975.stm

"The Alliance & Leicester is to stop charging any interest at all on overdrafts run up by its current account customers. A new set of daily fees will be introduced, while its charge for bouncing a cheque is to be reduced to £25 from £34.

...

Up to now, customers using an authorised overdraft at the Alliance & Leicester paid interest of between 6% and 17% each month.
That will be replaced with a new charge of 50p a day, up to a maximum of £5 a month, regardless of the size of the overdraft.
Those customers who go into the red without permission currently pay interest, plus £25 on the first day and then £25 on the fifth day of their unapproved borrowing, each month.
Those charges are being done away with and are being replaced with a single charge of £5 a day while the overdraft continues.
This will expose some customers to much higher charges if they stay in the red for a long time without permission."

Couldn't see this posted anywhere so thought I would add it. Personally I'm really not happy, but I'm a very light overdraft user so would be unlikely to accrue 50p interest on the sort of money I'd be borrowing. :rolleyes:

System · 22 September 2007 at 9:33AM

I have only gone into red once and was charged £50 for 5 days [although i did eventually get £25 refunded] this new system for me at least would be much fairer but i guess we ll have to wait and see what else changes:j

donaldtramp · 22 September 2007 at 9:51AM

Saw this as well and was just on route to post it but you beat me to it Lavendyr;)

I very rarely use my authorised overdraft these days but I do think it is fair to pay for a service. You are after all borrowing money from them when you need it.

Up to now, customers using an authorised overdraft at the Alliance & Leicester paid interest of between 6% and 17% each month.
That will be replaced with a new charge of 50p a day, up to a maximum of £5 a month, regardless of the size of the overdraft.
Those customers who go into the red without permission currently pay interest, plus £25 on the first day and then £25 on the fifth day of their unapproved borrowing, each month.
Those charges are being done away with and are being replaced with a single charge of £5 a day while the overdraft continues.
This will expose some customers to much higher charges if they stay in the red for a long time without permission.
"Customers should ask themselves whether the new simplified fee structure does actually save them money in the long-term," said Kevin Mountford of the price comparison website Moneysupermarket.com.
"According to our analysis, the new way of charging will result in Alliance & Leicester customers being marginally better off."

The bit that interested me was the Kevin Mountford part about saying customers would be marginally better off. I would be interested to see how they worked this out. One for Martin maybe? A&L looks like it's going to be one of the first banks to change it's fee structure in the wake of the overdraft charges reclaiming.
They are noticeably still going to be charging for bounced checks etc fairly heavily still

The Alliance & Leicester's charge for agreeing to pay a cheque, direct debit, or standing order while overdrawn without permission will stay at £25 each time it happens.
But the charge for refusing to make the payment while in the red - bouncing a cheque - will be reduced to £25 from the existing £34.

But for me(using the authourised overdraft very sparingly) the new daily charge would seem to be a benefit me according to this Kevin Mountford.

johnmoney05 · 22 September 2007 at 10:23AM

I am puzzled by this now!!!

I opened my account last month and got 0% Overdraft for 12 months from account opening, 7.9% EAR typical (variable) thereafter.

So does it mean now, I need to pay the "FEE" rather than the interest?? (please note carefully, it is FEE not interest and I only got 0% Overdraft interest free for 12 months)

I did receive a note from them last month regarding this change, I binned it, I thought it would not affect me.

Anyone still got that note?

[Deleted User] · 22 September 2007 at 10:30AM

I dont think this will be popular. I dont think the fee will be levied in your first year.

The fee is a max of £5 a month so if your in a permanent overdraft of £1000 it works out at 6%apr. However lets say you were overdrawn by 1penny for the whole year that means its a 6000% apr. That will of course whats printed in the papers, poor judgment by the directors IMO.

masonic · 22 September 2007 at 1:04PM

johnmoney05 wrote: »

I opened my account last month and got 0% Overdraft for 12 months from account opening, 7.9% EAR typical (variable) thereafter.

So does it mean now, I need to pay the "FEE" rather than the interest?? (please note carefully, it is FEE not interest and I only got 0% Overdraft interest free for 12 months)

I'd imagine you won't be charged for your overdraft for the rest of your first 12 months. It might be worth phoning them (using their freephone credit card enquiries number) to confirm that.

So it appears that people who run their accounts well will be subsidising people that abuse their accounts. I occasionally slip slightly into my authorised overdraft for one or two days a month. I'm charged around 2-5p in interest under the current system; I'll be looking at charges of twenty times that under the new system. Looks like it's time for me to shop around for a better current account.

Lavendyr · 22 September 2007 at 1:51PM

I agree with you there masonic - I use my small overdraft as a buffer in case debits and credits get overlapped for whatever reason, and as such would never incur 50p worth of interest in one day. Whereas someone who is £1000s into their overdraft still only incurs 50p a day as long as it's authorised.

[Deleted User] · 22 September 2007 at 2:18PM

Its also a contractual penalty charge thats disproportionate to the actual cost.

Isnt that why the banks are facing litigation?

Grade_A_Reject · 24 September 2007 at 5:39PM

It does seem to favour those with large overdrafts rather than those who go over by the odd few pence.

By my reckoning if the fees are capped at £5 per month (10 days at 50p) I could keep my account permanantly at it's £3000 overdraft limit and move the overdrawn balance to my plus saver account with them which is currently paying 5.25% interest and make money from my overdraft with them.

I've just run this through their online calculator and according to that I'd get £126 net interest while the fees would come to just £60. I'm not planning on doing this, just interested in the maths.

Rusty_2 · 25 September 2007 at 9:47AM

I was horrified when I first saw this in an email last night. I tend just to dip into my authorised overdraft facility for about 1-2 weeks per month with interest for the whole month normally less than 50p.
The way around this, as Grade_A_Reject said, is to increase your overdraft and put what you don't need in the associated A&L saver account to offset the £5 a month by gaining interest. (I wouldn't take it up to the overdraft limit though as I wouldn't trust myself not to go over it and get charged huge amounts).
You could also move all your direct debits (or at least the biggies) to a couple of days before you get paid if you would normally still be in credit before the DD's come out. Unconventional, but this would reduce the days overdrawn, hence less charges.

Thing is, I don't want to run my current account like this so after 10 years with A&L I think I'll be looking elsewhere.

Anyone know any other good current accounts which are cheap/free if you go overdrawn (authorised overdraft) slightly every month?

kittyk_3 · 25 September 2007 at 10:18AM

Having been reading about the advantages of the A&L premier direct account for ages, I am now in the process of switching only to find change in charges. As I am usually overdrawn for aprox 2 weeks of the month at around £300 - £500 once the introductory offer of an intrest free overdraft is up I will be worse off than with Nat West and they are not known for being competative. Have contacted A&L today to verify changes but note that on the web they are still advertising the accounts with overdrafts at aprox 5.9 EAR. I will be switching again in 12 months

Alliance & Leicester change overdraft policy

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