A&L scraps interest on overdrafts

Alliance & Leicester is bringing in a daily fee for being overdrawn, but says it will continue to offer free banking to customers in credit.

The bank has unveiled a package of changes to its current accounts that affect mainly those customers who have an overdraft. Next month, it will become the first UK bank to abolish overdraft interest for all its customers. Instead, current account holders making use of their agreed overdraft will pay an "overdraft usage fee" of 50p a day, capped at £5 a month. So you could be overdrawn for a year for £60.

There will be no fee for arranging the facility, and it will only apply when the overdraft is used.

That seems pretty clear and simple, but the new rules could have a sting in the tail for those A&L customers who exceed their authorised overdraft limit or go overdrawn without an overdraft.

That's because there will be a new £5-a-day charge on unauthorised borrowing. At the moment, the fees charged for going over your agreed limit are £25 on the first day and £25 on the fifth day, with a maximum charge of £50 a month. "Five pounds 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," says Mike Naylor at price comparison website uSwitch.com Overall, though, he reckons the changes are broadly positive.