uSwitch.com: A&L's Premier and Premier Direct current accounts

Mike Naylor, personal finance expert at uSwitch.com, the independent online price comparison and switching service, comments on the changes to Alliance & Leicester’s Premier and Premier Direct current accounts: “Hot on the heels of the changes Lloyds TSB has announced to its current account range, Alliance & Leicester (A& L) is following suit by announcing a host of changes to its two current accounts – Premier and Premier Direct. The changes, due to come into effect from 22nd October this year, are broadly positive and come ahead of the looming OFT court case on the legality of banking default charges, which is due to take place at the High Court next January. However, for A&L customers who exceed their authorised overdraft limit or go overdrawn without an overdraft, the changes could prove to have a sting in the tail.

Changes to Alliance & Leicester’s Premier and Premier Direct accounts

Overdraft rates will be set at 0% for both authorised and unauthorised overdrafts. This was previously set at 0% for 12 months on Premier Direct, reverting to 5.9% thereafter. For Premier, it was previously 0% for 12 months and 7.9% thereafter

It will cost 50 pence a day to use an authorised overdraft – capped at a maximum of £5 a month

Unauthorised overdraft fees will be changed from £25 a day on the first day and £25 on the fifth day, with a maximum charge of £50 a month. Customers will now be charged £5 per day, with the maximum set at £155 a month if a customer exceeds the agreed overdraft limit for a full month

Paid item fees (e.g. a direct debit paid without sufficient funds held in the account) and failed transaction fees (e.g. bouncing a cheque) will be set at £25. Failed transaction fees were previously £34

Paid items or failed transactions of less than £10 will now not incur charges

Mike Naylor continues: “Over the last couple of years A& L’s current accounts have been the best “all-rounders” and have been consistently in the best buy tables for their credit and debit interest rates, which is to be commended - Premier Direct currently offers 6.5%, which is one of the best on the market and currently only beaten by Abbey’s offering of 6.8%. However, A& L’s decision to offer a “0%” authorised and unauthorised overdraft is too good to be true. Under the new charging structure, authorised overdraft usage could cost customers up to £5 a month, or £60 a year. This is equivalent to an overdraft interest rate of 6.15% EAR, which for Premier Direct customers is actually slightly higher than the previous rate of 5.9% EAR after the 12 month 0% offer is over – so they could end up being out of pocket. However, the average authorised overdraft rate is almost double this at 12% EAR, so it is still a very good deal.

“Similarly, whilst dropping the maximum charge from £50 a month, to £5 a day on unauthorised borrowing is a positive move for some, customers who slip into unauthorised overdrafts regularly will need to keep a close eye on how much it is costing them. £5 a day may seem a better deal, but fees are not capped, meaning a customer could face a monthly charge of up to £155 if they were to go over their authorised overdraft limit every day.

“The amended offering is great for customers that run their account in credit for the majority of the time. Along with this, paid item fees (e.g. a direct debit paid without sufficient funds held in the account) and failed transaction fees (e.g. bouncing a cheque) now cost £25 - a reduction of £9 on the previous charges of £34. However, despite this reduction, we must not lose sight of the fact that banks are only allowed to cover their costs when dealing with unauthorised borrowing. £25 still seems too high a price to pay. Another positive change is that A& L customers will also not be charged for paid and failed transactions that are less than £10, which is a welcome improvement.

“We hope that other banks will follow the lead of both Lloyds TSB and A& L and reduce their overdraft charges and default fees. I believe that before the year is out banking customers will see a host of further changes as it seems the looming OFT case really does have the banks running scared.”