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While this site’s been proudly championing Bank Charge Reclaiming for years, we need to say, as loudly as possible…You’ll only get charges if you don’t work within the account’s rules, so it’s important to keep track of your cash and manage it properly.Know what’s in your account

Without regularly checking statements or ATM mini statements you can’t even begin to know when you’re near your overdraft limit.

Is a credit card cheaper?

Don’t assume your overdraft is cheaper borrowing than a credit card, often it isn’t. Check the interest rate of both, if the card is cheaper then use that instead – though do try to minimise all borrowing.

Avoid Cheques

Don’t pay by cheque, it’s then up to the person you’ve paid to decide when to cash it which can leave you off kilter. Automated direct debits and bank transfers are safer.

Expensive credit beats bank charges

Even if you’ve a costly credit card (up to 50%), if there’s room on it, and the only other option is to pay from your bank account and get charges, then pay on the card. Even high interest isn’t as costly as a bank charge – but do try and clear that debt asap.

Always do a budget

To balance your finances, you need to spend equal or less than you earn. The only way to genuinely do this is by doing a full budget to match up your annual spend with your income and work out what needs cutting if you’re over – use the Free Budget Planner.

Open your post!

If you bury your head in the sand, and avoid looking at bills as they’re frightening – stop it. Even if it’s bad, not managing it makes it worse. A few simple moves can often reduce the costs. If you’re really struggling see the Debt Help guide.

Print out Direct Debit dates

If you have regular payments coming from your accounts, print out a big list of when they are and roughly what’s due. Be aware of this and it should help you organise and prepare for the money to come in and out.

piggy bank

Use piggybanking

Bank statements lie, they’re just a snapshot of the amount of cash on that day – not what’s due in and out. So use a number of separate accounts; each for a different purpose – bills, Christmas, food, etc. Then when you earn, use Standing Orders to shift the right amount of cash into them. Lots of people swear by this method, see the full Piggybanking guide.

Pay off debts with savings

The interest paid on savings is usually far less than interest charged on borrowing, so paying off debts with any savings is a serious boon. Plus, if you’re getting bank charges avoiding them saves much more than the interest on savings – see the full Repay Debts With Savings guide.

Get your overdraft limit increased

If you’re struggling, speak to your bank, they’re obliged to deal with cases of financial difficulty sympathetically under the Lending Code. See if you can increase your formal overdraft limit, even temporality. While you may need to pay a one-off fee to arrange it, it’ll be better in the long term.

cash

Stick to cash

If there’s a fine balance to stay within your authorised overdraft limit, then stick to cash. Take out what you can afford to spend, eeke it out for as long as is needed, and it can help you stick within the spending limits.

Ask ‘em to cancel the charge

If you rarely have bank charges and have just made a mistake often a simple call to the bank, apologising and asking it to wipe the charge can work. Plus if you’ve had several in a short time frame, calling to explain the difficulties it could get you in too may mean a refund.

Consider a basic bank account

Basic bank accounts are specially designed for those with poor credit scores, yet as banks don’t make money from them they hide them, so you need to specifically ask for the account. See the Financial Service Authority’s Basic Bank Accounts PDF guide.

Also, some non-profit Credit Unions offer current accounts too.

Switch to a 0% overdraft

Reducing the interest you pay may help you get back into credit, so if you’ve a decent credit score compare Best Bank Accounts to see if you can lower the cost. Some have 0% overdrafts for the first year. Yet do check how costly their charges are using the table above.

Stop spending!

These words are easy to say but tougher to do. Yet if you’ve got bank charges you need to urgently stop spending and reclaim control. It can be done, see the full Stop Spending guide and Demotivator tool.

Cut other bills

Are you overpaying on the rest of your finances, if you can lower the cost of bills from contact lenses to car insurance the extra cash can help rebalance your finances. The Money Makeover guide will take you through it step by step.

Limit the number of transactions

With some banks every transaction you make beyond your limit incurs a charge. So spend £20 in four transactions and you could face £120 charges. Alternatively simply withdraw the cash in one go and use that if you have to, to reduce the charges.

Get help

If you’re struggling, there are non-profit debt counselling agencies who can help. They can talk to the bank and other creditors for you and stop things spiralling out of control see the Debt Counsellors list for more.

Beware setting off

If you have savings in the same place as debts your bank can take the savings without telling you, to repay the debts. So if you’ve put money aside to pay your mortgage and you’re overdrawn, beware it may be snaffled, see the Setting Off guide.

Reclaim charges if you’re in hardship

Most bank charges, especially the £30+ a pop ones, are thought to be unlawful and you should be able to get your money back. Currently reclaiming is on hold (see the Bank Charges guide for the latest) unless you’re in hardship in which case banks must deal with it now see Bank Charges Hardship guide.

If you’re in financial hardship this not only means you could get a refund of past charges but the regulator, the FSA has also suggested banks consider stopping any future charges and/or stop any debt enforcement action.

How bank charges work

bank charge

your allowed limit, no charges, just interest or fees

Buffer Zone

Some banks give you a buffer zone, where you are allowed to go overdrawn by a small amount (usually £10-£50 but can be as big as £250) without any interest.

Typical Cost: Interest and fee free

Standard Overdraft Limit

Most banks allow you to agree an overdraft limit with them in advance of you going overdrawn. The amount will depend on your circumstances but as long as any payments stay below your limit, you won’t be given any bank charges.

Typical Cost: You will either be charged interest of c.15-20% a year (though some offer introductory interest free deals, see Best Bank Accounts) or pay a fee of 50p-£1 each day you’re overdrawn.

Beyond your allowed limit so you incur bank charges

Paid Limit

Go beyond the standard limit and you’re in bank charges territory. Many of these charges are argued to have been set at unlawful levels so you can reclaim them (see the Bank Charges Reclaiming guide).

Within your paid limit, the bank will honour any payments you’ve made ie. the company your Direct Debit or cheque is made out to will get the cash.

It used to be when you went beyond your limit the bank didn’t pay out – yet the paid limit’s introduction’s been extremely profitable for banks and is estimated to make them well over £1bn a year.

Typical Charges: It can be £5-£35 for each payment made. So go shopping and breach your overdraft limit, spending £30 made up of four separate card payments that’d be 4 x £35 = £140 of charges. There’s also higher levels of interest charges for each day you’re above the limit

Unpaid Limit

Here the bank declines a payment so the money does not go through. The amount beyond your limit where this will happen is not published and sometimes will be on a payment by payment basis.

Typical Charges: Even though the only service the bank is providing is to tell you it won’t pay out – it will still levy bank charges and they can actually be higher than when it does make the payment.