Overdrafts in focus: Halifax current accounts
BACK in December 2013, Which? released research showing that differences in overdraft fees between banks could add up to thousands of pounds a year.
In one scenario the consumer group studied, a hypothetical situation where a current account holder went into an unarranged overdraft and had payments rejected, the most expensive bank would charge £183 more than the least expensive.
Now consider that further research from Which? found that around five million UK account holders go into their overdrafts at least once a month.
"Unless banks make it simple for people to compare the cost of running a current account, the switching guarantee alone will fail to transform switching rates or significantly increase competition in banking," said Which? executive director Richard Lloyd.
The least expensive option, by Which?'s reckoning, was Halifax's Reward Current Account, a finding which may come as a surprise to Halifax customers.
Going by more recent research, that finding still holds - as long as the facility is used correctly.
Halifax overdrafts in focus
Halifax tend to charge daily fees, rather than interest on the amount in overdraft, with no further fees charged for any payments made while the account is in overdraft.
Should a customer have an arranged, agreed,overdraft, the daily fees are as follows.
|Amount in overdraft||Fee every day|
|Up to £1,999.99||£1|
|£2,000 - £2,999.99||£2|
In addition, Halifax current account holders get a 'buffer', they can stray into overdraft just a little without being charged any fees.
|Reward account and Ultimate Reward account||£50|
So, for example, if a Halifax current account customer went into their overdraft by £60 for 10 days in a month, they would pay £10 in fees.
Other payments could continue to leave the account as planned, without any further charges being levied.
As these are daily fees, customers will only be charged if the account remains overdrawn past midnight of the day they go over the £50 buffer. Those who dip into their overdraft and correct it on the same day will not be charged.
Customers in Northern Ireland who switch to a Halifax current account, Reward Current Account, or Ultimate Reward Current Account, won't pay any daily fees on planned overdrafts in the first three months they hold the account.
Sound simple? As we've noted elsewhere, Halifax market themselves on simplicity, and it seems appealing, but actually there a number of factors which complicate these fees.
First up is the availability of the planned overdraft.
Anyone who doesn't pay a salary or other monthly amount into their Halifax account won't get one; nor will customers aged under 18.
Beyond that, whether one is granted, and the amount it is for, are subject to credit status, which Halifax do not clarify.
Customers registered for online banking can at least take advantage of the soft eligibility checker, whether they're thinking of applying for an overdraft for the first time, or increasing the limit of their existing facility.
But still, a large number of Halifax customers can't get a planned overdraft.
And the charge for an unplanned overdraft is much higher:
|In unplanned overdraft - any amount|
|£5 daily fee|
So, to use the example above: a customer goes £60 into an unauthorised overdraft for 10 days, but doesn't use the account to make any further payments. They'll pay £50 in fees.
Someone who goes £60 into an unauthorised overdraft but then makes further payments from that account will face further fees - at £5 per attempted payment.
There is at least a maximum charge of £100 per billing period for any customer going into an unplanned overdraft.
Reducing or removing overdrafts
Note also that the planned overdraft Halifax do offer is, as with other banks, subject to review. The review date should be every 12 months, on or near the anniversary of the original overdraft being agreed.
When the overdraft comes up for review, there's nothing to stop Halifax from withdrawing the overdraft facility - indeed, they make a point of reminding applicants that:
"Any overdraft we agree is repayable on demand, including any fees or interest."
Tucked inside their terms and conditions is the reassurance that they will give at least 30 days notice of the intention to reduce the limit, or withdraw the facility all together, unless they "need to take action sooner to protect our interests or for regulatory reasons".
They are most likely to do this when they feel a customer has grown more risky - that is, their financial situation has changed for the worse - but under the terms and conditions, they can do it for any reason.
Because so many Halifax customers are, in fact, unable to use a planned overdraft or find that the limit they're offered is too low, Halifax offer a fee shrinking service called Control.
Control: £10 for overdrafts
Control is only available to people with a standard current account - not the Reward or Ultimate Reward accounts - and it costs £10 a month.
Essentially, the facility stops most transactions leaving the account if their doing so would cause the account to go into overdraft.
Instead, the payment will just be declined: for example, someone out shopping who tries to use their card will find it's rejected.
More bothersome, automatic payments such as standing orders, direct debits, or other bill payments - including rent and mortgage payments - will be stopped if there isn't enough money to cover them.
Notice we said some transactions: actually Control customers can go into their unplanned overdraft in the following circumstances:
- The person taking the payment can't communicate with Halifax to find out how much money is in the account. Halifax give the example of a user being on a plane, but this also includes situations when there's an error communicating with the bank.
- A cheque paid into the account is returned.
- The planned overdraft limit is reduced.
- The payment is for an account fee, such as the £10 a month Control fee, or a previously incurred overdraft charge.
However, if Control customers do go into unauthorised overdraft for any of those reasons, they will only be charged £1 a day, rather than £5.
More control: mobile alerts
Halifax also have a Mobile Alert service, providing texts about their current accounts and, most usefully, about overdrafts.
The text service sends messages to customers whose balance is:
- near or over their planned overdraft limit
- at a high or low point, as set by the customer
Customers can also opt in for weekly updates or alerts when their card is used abroad.
How overdraft fees are paid out
As we've seen, Halifax charge daily fees. Fees are charged from when a payment is made that takes the customer into overdraft, not when that payment actually leaves the account.
So, for example, let's say a payment that would put the account into overdraft is made on Saturday - but it doesn't leave the account until Monday. The account holder would pay charges for Saturday, Sunday, Monday and so on until the amount is cleared.
Customers pay all their daily overdraft fees for a month in arrears. So if a customer goes overdrawn in November they will pay at the end of December.
Halifax should give 14 days notice of the fees due and say when they'll be taken out of the account.
Note also that they use their own esoteric "billing month" instead of a calendar month.
The billing month starts the day after the first working day of the month and ends on the first working day of the next month.
So as we update this, September 2015, the next Halifax billing month will begin on Friday 2nd October, and run until Monday 2nd November.
Clarity on fees
Another Which? survey has found that 64% of people who haven't switched their accounts in the past year (i.e. most people) agree that banks should be more transparent about the total cost of charges that current account holders can incur.
In terms of their planned overdraft fees, Halifax are fairly straightforward.
They could explain in slightly simpler terms the fees for unplanned overdrafts, which basically boil down to £5 a day, and £5 per attempted transaction.
This isn't all their fault, however, as the "Example Overdraft Scenarios" that most banks provide have been drawn up in collaboration with consumer groups and the Financial Conduct Authority.
However, some of the other banks offering overdrafts that incur daily charges, such as Santander and Nationwide, limit those charges to a set amount each month, whether they're incurred as a result of planned or unplanned borrowing.
Halifax only cap charges incurred as a result of an unplanned overdraft; there's no monthly cap to the amount in fees an authorised overdraft can incur.
That means a customer with a very large overdraft - more than £3,000 - can face charges of anything from £3 to £93 a month, and more if they go over their approved limit.
Note also that all of the above does not apply to Halifax Student, Easycash and Cardcash accounts. These have very different overdraft rules, the main difference being that they are subject to interest rather than set fees.