By Matthew Legg, Business Editor

Last updated at 14:34, Saturday, 29 March 2008

The battle to banish “unfair” overdraft charges has scored an early victory, with banks now charging account holders in the red an average five per cent less.

Over the limit: Sean Gardner, chief executive of MoneyExpert.com, says: ‘It is encouraging that average unauthorised overdraft rates have dropped by five per cent... but a 20 per cent rate is still very high and well above the average standard credit card rate’

Consumers and the banking industry are still awaiting the outcome of a High Court test case on the, which could see the practice ruled illegal. That could result in banks being forced to pay back millions of pounds in authorised fines.

But it appears financial institutions have already heeded a warning over the issue with a survey finding that the average interest rate charged for those going over their agreed overdraft limit has come down from 25.25 per cent a year ago to 20.01 per cent now.

At the same time, 41 of the 136 current accounts available do not charge a monthly fee to people who go into unauthorised overdraft, while 65 accounts also offer an interest-free buffer to customers, according to MoneyExpert.com.

Banks are currently waiting for the judgement in a High Court test case which could pave the way for a ruling on how much banks can charge customers for unauthorised overdrafts.

The case was bought jointly by the Office of Fair Trading and seven high street banks and a building society to settle the issue after consumers began to reclaim millions of pounds through the courts.

The MoneyExpert.com research found that nine current account providers still charge 29 per cent or more to people who fail to arrange an adequate overdraft, including the recently nationalised Northern Rock, while 52 accounts charge more than 25 per cent.

Among accounts that do charge a monthly fee for being overdrawn without permission, the average penalty is £22.80, while the average charge for a bounced cheque or unpaid direct debit is £28.29.

Sean Gardner, chief executive of MoneyExpert.com, said: “The current account market is changing rapidly, with new accounts being launched regularly offering high rates for being in credit and low rates for being overdrawn.

“It is encouraging that average unauthorised overdraft rates have dropped by five per cent in the past year.

“That said though, a 20 per cent rate is still very high and well above the average standard credit card rate.”

First published at 13:36, Thursday, 06 March 2008
Published by http://www.cumberlandnews.co.uk