What Can I Do to Avoid Bank Penalties?
Bank penalties have become a familiar scenario for thousands, if not millions of people across the UK. Many people are seeing a large chunk of their wages eaten every month by bank penalties when they go over their overdraft limit or do not leave enough money in their account to pay for direct debits, mortgage payments and other funds that come out of their account every month. Stopping these charges occurring by managing your money is one way to beat these irritating bank charges.
Why Bank Penalties Occur
If you have an authorised overdraft then the bank is allowing you to borrow a certain amount of money, in certain circumstances with interest paid to them. In most cases the overdraft will be paid back the next time your monthly salary is deposited in the bank. However, if you go over your overdraft limit, bounce a cheque, or go into the red by way of an unauthorised overdraft, even by a few pence, the bank will apply a penalty.
Not only will the bank charge you for going over your overdraft they may also charge you if money is not placed into your account within a certain number of days. For example they may give you five days to repay the amount and if the money is not repaid they will then charge you again. This amount can steadily increase especially if the charges are around £30 a time. Many people who have gone over their overdraft towards the end of the month can rack up as much as £100 within a matter of weeks; more if there are number of unpaid debits, cheques or standing orders.
Penalties or Profit
There has been much discussion in the media regarding unfair bank penalties and the matter is under investigation by the Office of Fair Trading. The banks state that their lending facilities come with prior warning of charges and it is the customer’s responsibility to be financially aware. However, the size of the penalties does seem to be unfair compared to the amount of work that goes into issuing them.
Banks state that penalties are their way of recouping their losses for bad customers who fail to make other payments. This again seems to be penalising good bank customers for the bad habits of other customers. Banks have also used the excuse that if these charges were not in place then it would mean the end of free banking. But the huge profits that the banks make every year does not seem to support this statement. Bank charges alone account for £4.5 billion in annual income for the banks, so it does seem advantageous for these penalties to be applied.
Avoiding Bank Penalties
The only way to avoid bank penalties is to make sure you do not go into the red at any time. For most people this is impossible and is the reason that overdrafts were set up. Paying for goods by cash instead of using debit or credit cards may help you keep a closer eye on your finances. Many people use their plastic without checking the balance and it only takes going into the red by a few pounds, or in some cases pence, for charges to occur.
Be Aware of your Spending
Make no mistake, if you are being hit by bank charges every month this will be a significant amount of your salary. One £30 charge a month will add up to £360 in charges over the course of a year. If you find that you are continually going into the red it may be beneficial to change to a basic bank account with no debit or credit facility; this way you will know exactly how much you are spending.
Fighting the Charges
Much has been made in the media of people who have reclaimed their bank charges; it is a lengthy process but is worth pursuing if you have been charged again and again for years. But it is also worth speaking to your bank by telephone even if you have only been charged once. In a lot of the cases persistence will pay off, and if you have been charged £30 for exceeding your overdraft by only a few pounds then phone and complain.
One of the best ways to complain is first to speak to your own bank branch and if they are uncooperative phone your bank’s head office and speak to the customer relations department. By taking your complaint higher than your own branch it makes the bank aware you are taking the matter seriously and not chancing your luck.
If you are a good customer then the bank will usually refund your charge as a matter of goodwill. But even if you are not a great customer it is still worth telephoning your bank and disputing the charges. Banks at the moment are continually dealing with disgruntled customers over penalties, and it is the customers who speak up and dispute the penalties who are receiving them back.