Fergus Muirhead on overdrafts

Fergus answers money questions on Reporting Scotland and online

I'm Fergus Muirhead and I'm trying to answer any money or consumer problems you may be facing at the moment.

You can contact me by e-mail at [e-mail]

I will deal with a selection of your e-mails every second Monday on lunchtime Reporting Scotland, Scotland Live and on the BBC Scotland news website.

Fergus also has a consumer page on Twitter: http://twitter.com/consumerstuff

Question 1. I am a 68-year-old widow and at present I am a customer of RBS and, as has been reported, their new overdraft rate from December is £1 per day for an arranged O/D.

I have an arranged O/D of £1000 but seldom have to use any more than £40 or £50. My State Pension is paid in 4 weekly and my very small employment pension is paid on the 27th of each month and because my direct debits are taken at various times of the month, sometimes there can be a short fall. It has been impossible to try to rearrange the direct debit payment dates to coincide with my state pension being paid as it varies each month. I am very concerned as I am finding it very difficult to get from the end of one month to the next and would be grateful for any advice you may be able to give.

Norma Nevin

Answer. The good new first of all, Norma, is that the changes apply to HBOS accounts not RBS and so you will be unaffected by the new overdraft charges. In terms of the problem you describe, however, part of the problem with the dates that you mention is that your State Pension may be being paid to you once every four weeks and you are trying to align that with Direct Debits that need to be paid once every month. It may be that you could have your State Pension paid weekly and this would aid with your budgeting. Call DWP on 0845 606 0265 and ask their advice. If you are finding it difficult to budget you might also want to call the Pension Credit Helpline to see if you are eligible for any help with a Pension credit top-up. Call them on 0800 991 234.

Question 2. I have an HBOS account and a large overdraft at the minute. When my monthly wage goes in to the account it just barely covers the overdraft amount, how will this affect me when the changes take effect? For example let's say my overdraft is £1000, and my pay each month is £1050, does this mean I will pay a pound a day for the privilege - in the region of £30 per month in fees? Will I be very much better off by paying back the overdraft? That has been my intention for a couple of years now but I don't seem to be able to make much progress.

David McMillan

Answer. If you have an arranged overdraft then you will pay £1 for every day that your account is overdrawn, up to £2500 and £2 per day if your arranged overdraft is over £2500. So in the example you describe above you will pay £30 a month in charges if your account is overdrawn every day of the month. If your overdraft is not authorised, or if it exceeds your agreed limit, this charge will rise to £5 daily. The answer to the other part of your question is that you would be better off paying the overdraft but that only works if you can afford to do that. An alternative might be to compare the costs of converting the overdraft to a fixed term loan and that way you would be forced to pay it off over an agreed period of time.

Question 3. I have been a Bank of Scotland customer for over 30 years and therefore I am reluctant to change banking arrangements but I think I will now consider a move.

I have two joint accounts with my wife and we also each have our own accounts. We also have savings accounts, ISAs and a small mortgage. I am seldom in need of my arranged overdraft facilities but feel these new charges are outrageous and make my facility a non-starter. One of our joint accounts is used as a bill payment account and we pay a monthly amount into this account to cover our annual bills for holidays, repairs, fees etc. We have an overdraft limit of £6,000 and the idea was to be in a position to pay our bills, whenever they occur but being square at the end of a year.

We had great peace of mind with this arrangement and we were rarely more than £1000 in debt at any time. Now this facility is useless, as the fees are excessive, at a minimum of £30 per month. God forbid all our bills fall early in the year and the cost of being in overdraft escalating to £150 per month.

Marshall Moyes

Answer. It can be sensible to keep a separate account for paying bills but as you rightly say it looks as though you may be penalized for maintaining a higher overdraft early in the year if a large proportion of your bills falls due before you have had a chance to fund this account adequately. As I understand the new rules, as long as your overdraft is agreed the maximum you will pay in any one month will be £60, and that assumes your overdrawn balance is greater than £2500 for the whole month, other wise it will be £30. The figure of £150 would only apply if your account was overdrawn above your agreed limit for the whole month and, from what you say, that is not likely to happen.

It is frustrating, as you say, and one option would certainly be to show your dissatisfaction by moving your accounts elsewhere. If you are reluctant to do then you might want to consider moving some money out of your savings accounts or ISA and into the account you use to pay your bills at the beginning of the year to avoid overdraft charges while you build up reserves. I appreciate this will mean you lose interest on the balance on this account, but this loss may be less than the charges you would otherwise pay.

It may also be the case that you need to look at the number of different accounts you hold if more widespread charges for current accounts are introduced in the future.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.