Bank charges explained

Bank charges refer to any fees levied by a bank on their customers. There are various types of bank charges – seven of the most common charges are outlined below:

1. Monthly account charges

If you have a packaged bank account, you can expect to pay a monthly fee in exchange for added extras such as breakdown cover or travel insurance. You may also have access to certain banking benefits, for example preferential overdrafts or loan rates.

2. Overdraft charges and interest

If you spend more money than you have in your account, you may incur a fee for going overdrawn. Banks used to charge a much higher fee for unauthorised overdrafts than they did for authorised overdraft agreements. However, new rules introduced in April 2020 put an end to this practice and banks must now charge overdraft users a single annual interest rate (APR), regardless of whether it is authorised or not. They’re also not allowed to include any additional fees, so it’s now easier to compare the cost of overdrafts. The amount of interest you’ll pay for going overdrawn depends on your bank. Overdraft rates typically range from 19% to 40%. There’s also a cap on the maximum amount you can be charged in fees and interest in any given month. The amount varies from bank to bank so you’ll need to check your terms and conditions.

3. Foreign transaction fees

You may be charged a fee to use your debit card abroad or withdraw cash in a foreign currency. Most banks charge fees of around 3%, while others may also levy a flat fee of between £1 and £3 on every foreign transaction. These types of charges are commonly known as non-sterling transaction fees. 

4. Charges for refused direct debits, standing orders & cheques

If you don’t have enough money in your bank account to cover a direct debit, standing order or cheque, your bank can refuse the payment and may charge you.

5. Same-day transfer fees

Transfers using the Faster Payment Service (FPS) are normally free, although there is a limit on the amount of money that can be transferred in one day. If you need to transfer a large amount quickly, for example due to a house sale, you may have to use the CHAPS payment system. There is usually a fee of between £15 and £55 for using this service.

6. Fees for one-off requests

Your bank may also charge a fee for completing one-off actions, such as stopping a cheque, getting a banker’s draft or ordering duplicate statements. Charges vary but they typically range between £3 and £30, depending on the service. 

7. ATM fees

According to LINK, around 96% of cash machine withdrawals are free of charge. However, there are some instances when you might incur a fee. Convenience ATMs, such as those in nightclubs or inside small shops, will sometimes charge you (although they will display a warning beforehand). You may also have to pay a fee if you use your credit card to withdraw money from an ATM. Banks are required to publish a full list of their charges, so it’s worth checking this before you open an account. 

You can sometimes claim back bank charges, depending on the type of charge and the reason it was made.

Claims for overdraft charges

If you have incurred charges for slipping into your overdraft, you can contact your bank and ask for a refund. You have nothing to lose, especially if you’re a valued customer with a previously good credit history. 

Bear in mind, however, that reclaiming overdraft charges is much more difficult than it used to be. This is because a Supreme Court ruling in 2009 means banks no longer have to prove that their overdraft charges are fair. If your bank refuses to refund the charge, you can still ask the Financial Ombudsman to investigate for free, although you will need to meet certain criteria. 

To file a claim with the Ombudsman, you will have to prove that you suffered, or are continuing to suffer, from real financial hardship as a result of the charges. In this case, financial hardship means you’re struggling to pay for basic necessities. You may also meet the criteria if you can prove the charges are disproportionately unfair (and you’re in financial hardship), or that you’re trapped in a cycle of snowballing charges. 

Claims for packaged bank accounts

If you believe you were mis-sold a packaged bank account, you may be able to reclaim the monthly fees you’ve been charged. 

If you’re not sure whether you have a packaged bank account, go through your old bank statements; these types of accounts charge a monthly fee that will be listed on your statement. If you see this recurring transaction but you don’t remember agreeing to the charge, you may have a case.

Mis-selling can take various forms. Some of the key categories are:

1. You were wrongly told you had to sign up to get another financial product like a loan, overdraft or mortgage
2. You weren’t told about free alternative accounts
3. You’re ineligible for the insurance perks that come with the account, e.g. your age or medical condition renders the travel insurance invalid
4. You were pressured into buying the account 
5. You were not informed about the monthly fee.

If you believe you were mis-sold, the first thing to do is to contact your bank. They may be willing to refund the monthly fees. However, if you’re not satisfied with their reply or you don’t hear from them within eight weeks, you can take your complaint to the Financial Ombudsman.

If your claim is successful, you should receive a refund for the account fees you have paid, plus interest. So if you paid £17 a month for three years, you could get back £612 (£17 x 36 months), plus interest. 

As a general rule, you have six years from the event occurring to reclaim the charges. (In Scotland, the limit is five years.) Once you are aware you have a complaint, you must make your claim within three years. If you exceed these timescales, the Ombudsman may not be able to handle your complaint.

In an ideal world you should try to avoid incurring bank charges in the first place. This is where good money management is vital. Here are some tips to help you avoid costly bank fees:

1. Set a monthly budget – review your income and outgoings and set a monthly budget. That way you’ll know exactly what you can afford to spend without going into your overdraft. You can use our free budget planner to help you.

2. Monitor your spending– once you’ve set a budget, keep an eye on your bank balance to check you’re on track. Online banking allows you to monitor your account activity quickly and easily.

3. Avoid credit cards – spending on credit cards can easily snowball, resulting in high-interest debts and charges.

4. Read the small print – before signing up for a new current account, read the small print to ensure you understand the terms, conditions and potential charges. 

5. Swap an expensive packaged account for a free alternative – while packaged accounts can save you money in some circumstances, if you’re worried about escalating bank charges you might be better opting for a free current account.

6. Avoid using cash machines abroad – this can be an expensive way of accessing money when overseas. You may want to look at a credit card that’s tailored to spending abroad (just make sure you pay off your credit card debt in full when you return home). 

If you’re struggling to manage your finances, we’ve written about how to stop spending money here, where you’ll find plenty of handy tips and ideas.

If you already have a current account and are looking to save, Raisin UK gives you access to a range of competitive savings accounts from our UK partner banks. 

We don’t charge you for opening savings accounts through our online marketplace, and you can open different accounts with just a few clicks, including fixed rate bonds, notice accounts and easy access savings accounts.