UK banks charged their customers £3bn for unauthorised overdrafts during the past year, Which magazine has said.
Customers that fall into the red can end up paying high fees
The magazine accused High Street banks of levying "exorbitant" rates of interest, as high as 33% APR, on unauthorised overdrafts.
However, banks say that there are generous free authorised overdraft facilities in place.
One in four people told the magazine they had used an unauthorised overdraft in the past year.
The magazine said the high proportion of people using unauthorised overdrafts suggested that consumers were being penalised for genuine mistakes rather than poor handling of their money.
"Unauthorised overdrafts are a gold mine for banks - the charges they levy are way out of proportion," said Martin Coles, editor of Which.
"It is especially unfair on customers who only occasionally run up a small unauthorised overdraft for a short time."
"We're calling on banks to stop punishing these customers by giving them a few days grace to pay back an unauthorised overdraft before charges are levied."
The magazine added that high interest rates and additional charges mean that unauthorised overdrafts are a "real money spinner" for banks.
Typical fees highlighted by the magazine include a £30 fee for bounced cheques and standing orders. Some banks charge unauthorised overdraft rates for the full amount overdrawn, even if part of the balance is within an agreed overdraft limit.
The magazine singled out NatWest, criticising the bank for charging customers a "contrived" unauthorised overdraft fee of 33.78% APR.
"Put simply, there is no need for customers to get into this situation. Arranging an overdraft is simple, straightforward and free," Ronan Kelleher, NatWest spokesman told BBC News Online.
"Any charges we do levy reflect the extra cost of administering an account which is in overdraft."
People should be more careful and keep track of their money. If they need an overdraft, they can always arrange an authorised one. For once I'm on the banks' side over this. People deserve to pay high charges if they borrow money without asking.
Jonathan, Leicester, UK
My bank refuses to give me an overdraft because I've had debt problems in the past, however recently I went 28p into the red, and was charged £27.50 for the pleasure.
Gavin, Hayle, Cornwall, UK
My bank charges me £25 per day every time I go more than £1 over my overdraft limit. In the space of a week I can go from being £10 over the limit to £135 - it is getting beyond a joke and someone needs to do something about it.
Mat Winn, High Wycombe, UK
My bank recently charged me £20 for being £3.70 overdrawn for 1 day. There is no justification for these charges despite what the banks like to say. They are getting such a large income from this I can't see them wanting to change their policy. It's wrong but there is little that consumers can do as they are all at it.
Sean, Chesterfield, UK
I recently went overdrawn for seven days due to a miscalculation of my finances. This is the first time I have done so in more than 10 years with the bank. The bank charged me £20 for going overdrawn and £8 per day for the seven days as they classed it as an unauthorised overdraft. I think £76 for a genuine one off mistake is highway robbery.
Mark Smith, Leigh, UK
My bank account has a buffer zone which means as long as I don't go more than £50 overdrawn for more than 14 days in a charging month then I don't get charged. If I exceed this then I expect to be charged. People know that banks charge when they go overdrawn so they should keep a closer eye on their accounts.
I think you would find that banks are quite sympathetic to people who do go overdrawn once in a blue moon. If someone goes overdrawn by a few pounds the day before pay day then I'm sure the bank would refund the charges. If the customers do that every month then they are being careless and I don't blame banks for not refunding charges.
People need to realise that the charges are computer generated even if the account goes just 1p over any agreed overdraft limit. If customers want someone to monitor their accounts personally then I'm sure the charges would be a lot higher due to the high volume of customers that banks have these days.
For all the stories written and complaints made, the banks continue to rip off their customers. I for one have also given up worrying about them. And the only way to do that is to stay out of debt in the first place - live within your means then you don't need to worry.
Neil Sherman, Taunton, Somerset
I've just moved to the US and how I wish banks here were like they are at home. They don't even have overdrafts here. If you go overdrawn they are on the phone straight away. They also charge for a cheque book, just having a current account, for savings transfers and charge you heavily if you use another bank's cash machine. Believe me the British banks are so much better. In fact its actually cheaper for me to withdraw money from my English account than it is to use a cash machine of another bank over here.
Gareth Kelly, Cambria, California
Maybe some of the profits could be put towards increasing the returns on the endowment policies which are not earning what the banks suggested they should.
George Sharp, Bristol
IF your bank does not give you a free overdraft limit, usually £100, and an authorised limit with an agreed overdraft charge then move your bank account. It is so easy to avoid charges or limit them.
Sandy Middlemas, Greenford, UK
"Any charges we do levy reflect the extra cost of administering an account which is in overdraft" is absolute rubbish. Banks have become very efficient at running accounts, in the red or not. Any standing charges are a joke, charging an APR is reasonable enough, although 33% seems a bit much. They could charge 10% and still make money.
Ralph Bolton, London, UK
The two or three times I have been charged for unauthorised overdrafts have been when money transfers from other banks have been delayed. With their unnecessary three day wait to transfer money, the banks seem to just want to sting us for all they can.
One of the major problems for customers trying to manage their accounts responsibly is that direct debit originators are frequently inconsistent in their timing. It is hardly a customer's fault if a direct debit arrives a day or two earlier than expected, but the banks are "staffed" primarily by computers operating without human intervention and which are incapable of applying any commonsense to situations that would have been dealt with much more sympathetically in the past. In such circumstances, it is hardly credible for the banks to say that there are huge additional costs that they have to recoup.
Andrew Ledingham, Edinburgh
I would not appreciate it if the bank decided to use my money unauthorised for a day when I wanted to withdraw it, and I do not object to charges for my unauthorised use of their money either. Either agree an overdraft or only spend money which is yours and you will not be charged.
Philip Thompson, Keele Uni, UK
My bank wanted to charge me £20 after a £2 direct debit to a charity put me over the overdraft limit.
Overdraft charges do not, as NatWest claim, reflect the cost of administering the account. Letters, for instance, are automatically generated as are charges. Per account this can only be a few pence at most, and postage is first class: a one pound charge would be appropriate. It is only when accounts get way out of line that a member of the bank staff has to be involved. Further, the banks mark against your credit rating for any minor infringement and keep a record of "how many days" were involved. If it is overnight they still treat it as negative and there is no period of grace. Finally, they take four days to clear a cheque. In New Zealand, since the 1960s, clearance of cheques has been overnight. If one country more than forty years ago can sort out this problem, there is no excuse for British banks to behave as they do now.
There ought to be usury laws forbidding banks to charge fees for overdraft excesses under twenty pounds, that gives three days of grace before excess charges are levied, and that require overnight clearance of cheques. The banks can not be relied on to be self-regulating in this matter as they have no interest in improving their conduct. Legislation is necessary.