Alliance & Leicester to simplify current account fees

Alliance & Leicester has announced it is to simplify the fees on its competitive range of current accounts.

From this autumn, overdraft interest will be a thing of the past for all Alliance & Leicester current account customers. Instead, customers making use of their agreed overdraft will pay a simple ‘Overdraft Usage’ fee of 50 pence a day. This will be capped at a maximum of £5 per month. There will be no fee for arranging the facility, and it will only apply when the overdraft is used. This makes it much simpler for customers to work out the cost of borrowing.

Customers who stay in credit – the vast majority – will continue to enjoy ‘fee free’ banking and A& L’s competitive credit interest rates.

Andy Bayes, Head of Current Accounts comments: “Alliance & Leicester is committed to offering free banking for customers who stay in credit – our research confirms that 94% of people agree that having a bank account should be free.

“Alliance & Leicester is the first UK bank to abolish overdraft interest for all its customers. The changes we are making mean that customers using their agreed overdraft will never pay more than £5 a month, regardless of the amount they are overdrawn or the number of days – and very many will pay less.”

For customers who go over their agreed overdraft limit, a simple £5 fee will apply each day the account remains over the agreed limit. (This replaces both overdraft interest and the fees charged for going over the limit – currently £25 on Day 1 and £25 on Day 5, if still over the limit.) If customers slip over the agreed limit for a few days it is much easier to work out the cost and it could be quite a bit cheaper.

Whilst some customers slip over the limit but then quickly retrieve the situation, others continue to present additional payments. The situation for these customers has also been greatly simplified and the fees reduced. A simple ‘Payment Review’ fee of £25 will apply to payments presented when the customer is over their agreed limit - but all payments under £10 will be processed free of charge. (The current distinction between the ‘Unpaid Item’ fee of £34 when the payment is ‘bounced’ and the ‘Paid Item’ fee of £25 will be scrapped, again making it easier for customers to work out the cost.)

Andy Bayes comments: “Research that we carried out earlier this year made it clear what customers want. They are in favour of banking continuing to be free, and the vast majority (81%) think that if banking is free, then it’s fair to pay when going overdrawn.

“However there is a lot of confusion when it comes to overdrafts. Nearly two out of three (62%) people with an overdraft facility admit that they don’t know the rates that apply to their overdraft – and those who are aware massively underestimate them. Yet nine out of ten people (95%) recognise that it’s their responsibility to understand their current account – but think it’s their bank’s responsibility to explain things clearly.

“We have therefore set out to simplify our current account fees in line with what customers want. Two thirds (67%) of people with a view think interest on overdrafts is complicated to work out and replacing this with a simple daily fee for going overdrawn would make it easier for them to manage their money.

“This move strengthens Alliance & Leicester’s position as the UK’s best current account provider – giving people great credit interest on their money and the simplest overdraft tariff on the market.”

The new fees will apply to customers for statements issued from 22 October onwards. The bank will be writing to all current account customers during the coming month, providing plenty of advance notice of the changes.

Free overdrafts

New customers will continue to benefit from free overdrafts in the first 12 months. For the last five years customers opening a new Premier or Premier Direct current account have had the unique benefit of a 0% overdraft for the first 12 months. Now that all A& L customers will benefit from 0% overdraft interest forever, new customers will enjoy the benefit of a free overdraft, with no usage fees applied for the first year.