'Free in-credit' banking model failing millions of customers

With the new Current Account Switch service soon to launch, research by thinkmoney reveals how the 'free in-credit' bank account model is failing millions of customers.
 
While many of us don't explicitly pay for day-to-day banking, millions do. Over a third (36%) of current account holders typically go overdrawn at some point in the month. For those with an authorised overdraft this isn't usually a problem, although many accounts have overdraft usage fees. But for those who enter their overdraft unauthorised, fees can be hefty.
 
42% of account holders have paid bank charges at some point. Of these, over half (57%, or 11 million people) have been pushed overdrawn again when bank charges were applied. The average current account customer paid £46.84 in bank charges in a year - but around one in six (16%) paid more than £100.
 
There are two main types of unauthorised overdraft charges: daily usage fees (applied by some providers) and charges for returned items, like unpaid Direct Debits and Standing Orders. A quick look at some 'free in-credit' accounts on the market revealed the following charges:

£10 daily usage fee if you're overdrawn by more than £25, capped at 8 days - so you could be charged up to £80 per month

£5 daily usage fee, capped at 20 days - so you could be charged up to £100 per month

£20 when you first enter your unauthorised overdraft

£25 for unpaid transactions (if the transaction is over £25)

£25 if you're already in your unauthorised overdraft, and you make another payment from the account while you are still overdrawn. 

£150 if you're in your unauthorised overdraft for more than 21 days, and you try to make more than 12 payments in that time
 
To make matters worse, unpaid transactions will often trigger a further charge from the firm claiming the money - a hidden cost of being overdrawn. For example:

A £12 charge is applied by most credit card and personal loan providers for a bounced Direct Debit - plus some will cancel promotional rates if a customer makes a payment late

A payday lender charges £20 if a customer cannot be contacted during the day the payment is due

A mobile phone company charges £5 every time it tries to take a payment and it bounces back

A mortgage provider charges an arrears fee of £23 if you fall a month or more behind on your mortgage payment, and no alternative payment plan is agreed
 
Even Basic Bank Accounts don't usually protect customers from unauthorised overdraft charges - although three quarters (72%) of the 54% who are aware of Basic Bank Accounts think they do.
 
Ian Williams of thinkmoney said: "There is no doubt that many people don't pay to use their current account.  But millions do, and for some the charges can be high and unpredictable. Even a short period of financial instability that pushes you into an unauthorised overdraft can spell large charges. This can make it difficult to get out of your overdraft - which, in turn, can trigger more charges.
 
"The thinkmoney Personal Account does not allow customers to enter an overdraft - which means there are no overdraft fees and no charges for missed payments either. There is just one transparent monthly fee of £14.50 for a single account, and that's all you'll ever be charged for day-to-day banking in the UK. This fee includes a built-in budgeting service that ring-fences the money you need for bills, to ensure that they are paid on time. The rest of your money is moved over to you - and you can spend it however you like, because you'll know your bills will be paid.
 
"Our customers tell us that their thinkmoney Personal Account actually saves them money, despite having a monthly fee, and also helps put them back in control enabling them to manage their money better."