The term bank charge covers all charges and fees made by a bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

 to their customers. In common parlance, the term often relates to charges in respect of personal current accounts or checking account. These charges may take many forms, including:

• monthly charges for the provision of an account
• charges for specific transactions (other than overdraft limit excesses)
• interest in respect of overdrafts (whether authorised or unauthorised by the bank)
• charges for exceeding authorised overdraft limits, or making payments (or attempting to make payments) where no authorised overdraft exists

Much of the following discussion relates to the UK personal current account market.

Monthly account charges

Banks may charge their customers a fixed monthly charge for the provision of the account. In the UK, this was not common practice until the 1990s when banks began to introduce this type of bank charges as a means of product differentiation - often offering additional services bundled with the bank account itself (e.g. travel insurance, mobile phone insurance, preferential rates on other products).

Charges for specific transactions

Until the 1980s, most banks in the UK charged for all transactions. A number of newer entrants to the personal current account market took a "no fees whilst in credit" approach, leading very rapidly to a situation where no bank could compete with others without offering the same deal.

Whilst the loss of income incurred was, to some extent, covered by the interest earned on carrying balances in current accounts, the banks' profitability on personal current accounts was severely impacted by this change in the charging structure. In turn this led to the banks' increased use of charges for exceeding overdraft limits as a means of generating their required level of profitability.

Interest in respect of overdrafts

Most banks charge interest to their customers in respect of overdrafts. It is common to charge differentially for authorised and unauthorised overdrafts, with unauthorised overdrafts often bearing an interest rate two or three times higher than authorised ones.

In order to gain customers from competitors, banks will sometimes offer introductory 0% or low interest rates on authorised overdrafts, together with generous initial overdraft limits.

As part of the development of the personal current account market in the UK, certain banks have altered their overdraft charging structure to a fixed daily charge, irrespective of the size of the overdrawn balance.

Charges for exceeding authorised overdraft limits

As banks' income from transaction charges declined, due to the "free banking" that had become the de facto standard in the UK personal current account market and the banks' income from carrying balances fell due to declining interest rates, banks sought to reinstate the profitability of their businesses by significantly increasing the charges levied for exceeding authorised overdraft limits, or when customers make payments (or attempt to make payments), including direct debits, cheque payments or standing orders, where no authorised overdraft limit exists. Typically banks charged in the region of £25 to £39 for transactions in breach of an authorised overdraft limit, irrespective of the size of the transaction or the degree by which the limit was exceeded.

These charges are commonly referred to as penalty charges, although it was held in a test case on the subject (link) that, other than in a few minor cases, most UK banks' charges did not constitute a penalty for breach of contract under common law.

The increase in the size of such charges led to public disquiet and to internet-led campaigns against them. Early focus of such campaigns was the argument that they represented penalties for breach of contract, which would then render them limited to the cost to the bank. As noted above, the test case held that they were not penalties for breach of contract. Hence the costs the banks incur are not strictly relevant.

Transfer Redirection charges

A Redirection of Transfer charge is included in bank charges and are only required on specific transfer occasions only. A redirection fee is a bank charge that is only paid to a bank when a mistake is made by another bank and a sum of amount is transferred into a wrong bank account in another bank. This may occur between continents,countries or states. A redirection fee is often expensive when required as the bank requiring this may not have legal rights to freeze the account the funds are mistakenly transferred into. It may also require urgent attention depending on the banking rules of the country and it takes a period of 30–45 minutes for a redirected transfer to be completed. This is normally caused in a Bank Wire Transfer, Telegraphic Transfer also known as Telex Transfer (T/T) and most times, local bank to bank transfer. A redirection fee is only needed to be paid to the bank the funds are in and the bank will have to redirect the transfer to its correct destination. Most banks calculate this type of bank charge according to the amount in question.

External links

• The Guardian
  The Guardian
  The Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...
  
  , 23 June 2009, Canada: Where bank charges are usual