Lloyds TSB and Bank of Scotland revamp overdrafts

ATMIn a bid to 'help customers avoid charges' Lloyds TSB and Bank of Scotland are revamping the overdrafts the two banks offer, waiving interest on money borrowed as well as the monthly fees usually due on top.

But the caveats are aplenty.

What are the deals?

The new overdraft limit on the free monthly classic account is a paltry £25. But the limit staggers upwards depending on what type of account you have.

For more generous allowances – up to £300 on the Platinum account – you still pay a monthly fee for the account, even if you don't for the overdraft. For example, the Silver account costs £9.95 a month, but the overdraft limit is only £50. The Platinum account costs £17 a month.

Before you relax the purse strings, the changes don't take place until October and you need to apply for the deal first.

More terms and conditions

In a classic example of giving with one hand and taking away with the other, the interest rates and monthly overdraft fees for both banks' range of accounts will actually go up in the autumn.

So if you borrow more than the overdraft limit plus the £10 buffer (which wipes fees if you dip slightly into the red), the monthly fee goes up from £5 to £6.

The annual borrowing rate on the Lloyds TSB Premier account, which costs £25 a month, will rise from 12.43% to 15.43% - a percentage increase of 24%. The rate on the classic account will rise by less, from 19.28% to 19.94%.

And if you weren't already bored of the negatives attached to these offers, Bank of Scotland will bump up the monthly fee on some of its current accounts too, bringing them in line with the fees charged by Lloyds TSB

Accounts that offer more

Online bank First Direct offers a £250 interest-free overdraft as standard on its 1st Account. You can dodge the £10 monthly fee for the account if you pay in at least £1,500, or if you maintain an average monthly balance of £1,500. You also get a £100 bonus for switching.

The Co-op's Current Account Plus has a £200 overdraft with no fees, so long as you pay in £800 a month. Annual interest rates are still lower than the majority of the Lloyds TSB accounts at 15.9%.

The Ultimate Reward Current Account from Halifax offers a £300 fee-free overdraft and you get £100 for switching before the 15th July. But the sting in the tail is the £10 a month fee and the fact you have to pay in £1,000 a month – otherwise the monthly cost rises to £15.

Interest or fees?

Santander's 123 Account and Everyday Current Account don't charge interest on planned overdrafts, but charge £1 a day instead. This could quickly become an expensive way to borrow and in some cases may be more costly than paying interest instead of fees. However, the charges are waived for the first four months if you switch to either of the accounts.

In all cases there are no guarantees you will be accepted for an overdraft facility. Have a chat to your bank and if they're not going to play ball, see if another bank will. You can also compare current account deals with lovemoney.com.
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