Bank Charges Have NOT Got Cheaper

Barclays is once again changing the small print in its current-account contracts to try to get around the unfair bank charges issue.

Barclays is once again changing the small print in its current account contracts to try to get around the unfair bank charges issue.

The bank has reduced the fee it charges its customers for going overdrawn from £35 to £22.

When I saw Barclays' press release I was really hoping that it might do some good for poorer, more indebted people, but I remained cynical. Sadly, I was right to.

Here's how the standard, `free' account will operate from 2 June (including existing customers):

• You still get no credit interest. (OK, for existing customers, it's a pointless 0.1%. But for new customers it really is zero.)
• You can still get an agreed overdraft.
• The agreed overdraft rate will go up from 15.5% APR to 18% APR.
• You will be penalised by a lower figure of £22 if you exceed your overdraft limit.
• The cost of bouncing an item will be £8.

That last two points need elaborating, because how the penalties will now work is quite complicated, and therein hides why most people will still end up paying roughly the same as before.

The `Personal Reserve'

If you exceed your agreed overdraft limit, you go into what Barclays has decided to call your `Personal Reserve'. Barclays will assign an individual Personal Reserve (PR) depending on your circumstances, but it claims the average PR will be £250.

It costs you £22 to go into your PR. Once there, you can make as many transactions as you like over a five-day period and not get charged again, provided that you don't exceed your PR limit. You are not charged interest on your PR (although you are still charged interest on your agreed overdraft).

If you exceed your PR limit, Barclays claims the item will bounce, at a cost to you of £8.

Here's why this isn't cheaper for those incurring charges

Most people with money trouble will continue to exceed their agreed overdraft limit and be charged for it.

Once they have been charged, they could continue to spend within their agreed PR limit without incurring further charges.

But I think many people will be too embarrassed, most of the time, to conduct transactions that they know will fail. So I think they will, as far as possible, delay further purchases for a few days.

And of course, the PR only lasts five days from the day you first exceeded your limit.

After those five days are up, if you spend again, Barclays will create yet another Personal Reserve at an additional cost of £22.

Therefore, I think most people will probably continue to incur the same number of charges as they did previously. These charges are lower (£22, rather than £35) but, as I said, the interest rate on the agreed overdraft has gone up to 18%. Running some rough figures I see that the costs will level out and make no difference.

A handful of people may benefit

I'll try now to look on the positive side. To start with, although most people struggling with finances won't be better off, they shouldn't be worse off either.

Furthermore, I think that, for the relatively few extra people who have items bounced, it may make them think sooner than they otherwise would that perhaps it's time to face their money trouble. It may encourage them to get debt guidance from such websites as The Fool, or even to call National Debtline.

Finally, all existing customers will be given an opportunity to opt out of having a Personal Reserve on their accounts. I strongly urge that you do this. If you're not making ends meet, you cannot borrow your way out of debt. Be strong, and take this opportunity to learn how to get out of it.

A new range of accounts

In addition to changing overdrafts and charges on its existing accounts, Barclays has invented a new range of bank accounts. Mostly it's just tinkering, but you should look for the account that is most suitable for you by searching all existing current accounts.

> Compare current accounts through The Fool.