How to Cut Everyday Banking Fees in the UK

Where everyday banking fees come from

A standard current account is usually free to hold and use for normal transactions. Fees appear when you step outside normal use, or when you pay for extras bundled into the account. The most common everyday costs are overdraft interest when you spend more than you have, monthly fees on packaged accounts that include insurance and perks, and charges for using your card or withdrawing cash abroad.

According to MoneyHelper, most current accounts are free to use, but you can be charged if you do not have enough money to cover a payment, in which case you would normally pay overdraft interest or unpaid transaction fees. Knowing which of these applies to your account is the first step, because each type of fee has a different and specific fix.

How the FCA changed overdraft pricing

In June 2019 the FCA confirmed what it called the biggest shake-up to the overdraft market for a generation. The rules stopped banks and building societies charging higher prices for unarranged overdrafts than for arranged ones, banned fixed daily and monthly fees for borrowing through an overdraft, required overdrafts to be priced with a single annual interest rate, and required arranged overdraft prices to be advertised with a representative APR so customers can compare them against other products.

The main pricing rules came into force on 6 April 2020, with the repeat-use measures effective from 18 December 2019. The FCA estimated that the typical cost of borrowing 100 pounds through an unarranged overdraft would drop from 5 pounds a day to less than 20 pence a day. It later reported that the changes, across the pricing and repeat-use measures together, saved customers close to 1 billion pounds, and that each customer with an arranged overdraft or access to an unarranged overdraft saved on average 17.40 pounds in charges in 2021.

The practical takeaway is that unarranged borrowing is no longer punished with sky-high separate fees, but interest still applies. The FCA reported that seven out of ten overdraft users would be better off or see no change under the new rules. That does not make an overdraft free, so the aim is to use it rarely and clear it quickly.

Arranged and unarranged overdrafts: keeping the cost down

An arranged overdraft is a borrowing limit you agree with your bank in advance. An unarranged overdraft happens when you spend beyond your balance, or beyond an agreed limit, without arranging it first. Since April 2020, banks cannot charge you more for an unarranged overdraft than an arranged one, and they cannot add fixed daily or monthly fees on top. Interest is charged at a single annual rate, which makes it easier to compare accounts.

Because overdrafts now carry interest rather than flat fees, the cost depends on how much you borrow and for how long. The cheapest overdraft is the one you do not use. If you regularly dip into it, it is worth checking whether your provider offers an interest-free buffer, moving your payment dates so bills land after payday, or switching to an account with a lower overdraft rate or a fee-free arranged limit.

Packaged bank accounts: are you paying for what you use?

A packaged bank account charges a monthly fee and, in return, bundles in extras such as travel insurance, mobile phone cover and car breakdown cover, sometimes alongside perks like fee-free spending abroad or cashback, as MoneyHelper explains. These can offer good value if you genuinely use every benefit, but poor value if you are paying for cover you already hold elsewhere or cannot claim on.

The FCA sets specific rules on how these accounts must be handled. Under the FCA Handbook (ICOBS 5), firms must take reasonable steps to establish whether a customer is eligible to claim each benefit under each policy in the account, and must provide the customer with an eligibility statement in writing on an annual basis, setting out the qualifying requirements to claim each benefit and recommending the customer reviews whether they still meet them. This annual statement is a useful prompt to check the account still earns its fee.

MoneyHelper notes that if you are struggling financially or think you were mis-sold a packaged account, you can ask your bank to refund charges or monthly fees paid over the last six years. Grounds can include being told you could not have a free account, not wanting or needing the included insurance, not being eligible for a benefit, or being told you had to open the account to qualify for another product such as a mortgage or overdraft.

Charges when you use your card abroad

Using a card overseas can trigger charges that do not apply at home. A non-sterling transaction fee may be added when you pay in a foreign currency, and withdrawing cash from a foreign ATM can attract an additional non-sterling cash fee on top, sometimes as a flat amount and sometimes as a percentage. MoneyHelper highlights that some packaged accounts include fee-free spending abroad as one of their perks, which is worth weighing if you travel often.

The cheapest approach is to check your own account's foreign use charges before you travel, since they vary widely between providers. If your everyday account charges for overseas spending, a specialist account or card built for travel can remove those fees. Always choose to be charged in the local currency rather than pounds at the point of sale, because dynamic currency conversion offered by the retailer or ATM usually carries a poor exchange rate.

Common everyday bank fees and how to avoid each

The table below summarises the fees most people encounter and the practical way to reduce or remove each one. The right move depends on how you actually use your account, so start by reading your own account's terms and the annual statements your provider sends.

Switching accounts for free with the Current Account Switch Service

If your current account is costing you more than a better one would, switching is straightforward. The Current Account Switch Service (CASS) is a free service that completes a switch in seven working days. Your new bank transfers your regular incoming payments such as salary or benefits, your outgoing payments such as direct debits and standing orders, your balance and your saved payee details, while your old provider closes the old account.

The switch is protected by the Current Account Switch Guarantee. Any charges or interest you incur because something goes wrong with the switch will be refunded, and payments made to your old account are automatically redirected to the new one. CASS reports that more than 12 million people have switched successfully, and that 50 or more UK banks and building societies take part, so the choice of destination accounts is wide.

Before you switch, compare the overdraft rate, any monthly fee and the charges for using the account abroad, so the new account genuinely reduces your costs. If you want a simple, guided way to review your everyday payment costs and keep them low, explore our Pay tools or book a demo to see how it fits your finances.

Conclusion

Everyday banking fees are easier to cut than they used to be. The FCA reforms mean overdrafts are priced with a single, comparable interest rate and unarranged borrowing is no longer loaded with extra fees, packaged accounts must come with clear annual eligibility statements, and the Current Account Switch Service makes moving to a cheaper provider free and guaranteed. The savings are real: the FCA reported customers collectively kept close to 1 billion pounds after the overdraft changes.

Start by reading your own account's terms and the statements your provider sends, then match each fee to the fix: an interest-free buffer or a lower overdraft rate, a downgrade from a packaged account you do not use, and a travel-ready account for spending abroad. When a different account clearly costs less, switching through CASS takes seven working days and carries a guarantee. A short review today can quietly save you money every month from here on.

Frequently asked questions