Untangling bank charges


In the modern era of transparency and simplicity, there is still one area that seems to be filled with mystery, and it is one that affects everyone.

Whether you operate a freelance business as a sole trader or you own a significantly-sized company, you undoubtedly spend larger portions of your life than you’d like trying to unravel the mysterious charges that sometimes appear on your bank account.

Given the less than stellar track record that the high street banks have when it comes to helping themselves to our hard-earned funds, it is an area that everyone needs to understand thoroughly. This article is aimed at demystifying bank charges.

Transparency is vital

Before we look at some of the most common types of charges, it is important to understand that banks have an obligation to tell you up front about the full conditions of all their charges. In theory, banks should be the most transparent types of organisations out there, given the outrageous scandal whereby millions were mis-sold payment protection insurance.

Banks have so far paid out well over £22 billion in compensation, and it is not over yet. Customers from all the major high street banks are involved. If you think you might be eligible to make a Barclays, Lloyds, RBS or Halifax PPI claim, there is still time to do so.

These days, banks are more careful about how they sell their products, but that does not mean they are as transparent as they could be with some of the charges levied. Here are some of the most common examples. How many appear on your statement every month?

Overdraft fees

An overdraft is an enormously handy facility to have for those occasions when cash flow becomes tight, but be careful; the fees payable can vary enormously. Some personal accounts offer an interest-free facility up to a certain limit, but if you want an overdraft facility for your business account, there will generally be a cost involved.

Banks will typically charge an interest rate in the 15 to 20 per cent range. However, this is just for an authorised overdraft. If you go over your limit, the fees and penalties will skyrocket and could also affect your creditworthiness. If you think you are getting close to your limit, speak to your bank right away. They might be able to offer some added flexibility to reduce the costs.

Refused payment fees

Another reason to stay within the agreed overdraft limit is that if you exceed it, the bank will be unable to pay any direct debits that are due. Not only could this result in something important such as your insurance lapsing, but the bank will often charge you a non-payment fee of as much as £25 per failed transaction, too.

Transfer fees

These days, most of us can transfer funds to and from our accounts via mobile banking apps in the blink of an eye. Why does a business account always seems to be incurring transfer fees?

Essentially, this is because smaller personal transactions are made using a system called “faster payments,” which is free, while larger, commercial transactions take place via the CHAPS system. These types of transactions can cost around £25 each time.

If you carry out a large number of transfers every day, speak to the bank and work out the cheapest way, or it will end up costing you a fortune.

Foreign transactions

Do you conduct business with overseas clients or suppliers? If so, there will be foreign transaction fees to consider. The exact costs depend on the country you are dealing with as well as the type of transfers involved. You will also have currency conversion fees to take into consideration.

Keeping fees to a minimum

There are two strategies you need to follow to minimise your bank charges. The first is to keep an eagle eye on your account. Today’s online banking environment makes this easier than ever, so there is really no excuse not to know what is coming in and going out.

This brings us to the second point, which is to question everything. There are various ways of doing most things when it comes to finances, and if a particular type of transaction is constantly costing you money, there is almost always a cheaper way of achieving the same thing. However, the bank is not going to present it to you on a plate. Speak to your business banking manager and ask for a better solution. If they don’t manage to come up with one, remember that the high street is full of other alternatives. It is your money, so avoid giving it away. Good luck!