Watch out – your overdraft rate may be about to rocket

Think your overdraft charges are high? How does paying 36,500% a year sound?

No, this isn't the charge from some back-street sub-prime lender. It is in fact the rate that some Halifax customers could end up paying on their overdrafts when the bank introduces a "simplified" overdraft charging system later this year.

The new system means that most Halifax customers (those with Cardcash, Easycash and Student current accounts will be unaffected) will now pay a daily fee for using their overdraft, whether it is authorised or not.

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Those with an authorised overdraft will pay £1 a day if they slip into the red by up to £2,500. Above that, you'll pay £2 a day. That means that if you go £10 into your arranged overdraft for 20 days, you'll pay £20 in charges. £1 a day on a £10 overdraft is the equivalent of a 36,500% annual interest rate, reckons consumer rights programme Watchdog.

"Anyone who's unhappy with the new charging structure should vote with their feet by shopping around and switching to a current account that best suits their needs," says Which? personal finance writer Dominic Lindley. Alliance & Leicester offers a much better overdraft charging system, which is currently topping the best-buy tables. Its Premier Current Account offers an interest-free overdraft for the first year. After that, a daily usage fee of 50p is charged but crucially this is capped at £5 a month. And they'll give you £100 when you open the account and switch your direct debits over to them before 8 November.

Don't just ignore bank charges you could be due a refund

But don't think that you can forget about bank charges if you're not a Halifax customer. The bank isn't the only one to change its charging structure recently. Last month for example, Royal Bank of Scotland-owned NatWest announced it was cutting its fees for various services. This includes the charges it levies for paying for goods while overdrawn. This has fallen from £30 to £15.

These changes may well be a sign that banks are acting before they are forced to, once a test case regarding unfair banking charges is finally resolved. This has been dragging through the courts for several years now, but the banks have lost at every stage, and have in fact already refunded more than £550m in unfair charges.

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To cut a long story short, the end result (when we finally get there) could be that the Office of Fair Trading is allowed to prevent banks from levying such charges, and can demand that they refund past charges. The case is currently being heard by the House of Lords with a decision due before Christmas.

If you haven't yet applied for a refund for unauthorised overdraft charges, now is the time to put in your claim. That way you'll be in the queue if the final decision goes against the banks.

Making a claim for unauthorised charges

You can claim for penalty charges - but not interest - incurred when you went into an unauthorised overdraft going back six years. Start by digging out your bank statements and highlighting all those charges. If you don't have statements going back that far, ring up your bank and ask for a list of charges. You can even do this for bank accounts you have closed.

Once you've worked out how much you are owed, write to your bank. Explain that you believe the charges were disproportionate and ask for the money back. You can download a template for this letter at MoneySavingExpert.com. Include photocopies of the statements and get a certificate of posting from the Post Office so you have proof of when you sent the letter (particularly important just now with the strikes).

Until the test case is resolved, there is a freeze on all pending cases (although if you can prove financial hardship, the bank has to deal with your case as a matter of priority) so you won't get any money straight away. However, you will be in the queue when the case is resolved.

And hopefully you shouldn't have to wait too much longer. In a rare act of common sense, Gordon Brown has spoken out to say that, should the banks lose the case fingers crossed they can't dawdle about paying back customers. "I certainly agree that once the legal issues have been resolved, any compensation that is due should be paid as swiftly as possible," he wrote in an open letter to Martin Lewis on MoneySavingExpert.

So get in your claim soon and meanwhile, make sure that your bank hasn't made 'simplifications' to its overdraft charges that will end up costing you more.

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