General information, not financial advice. Fees, rates and switching offers quoted are correct on the dates stated and change frequently — check with the provider before acting.

📌 The 60-second version

Bank fees are smaller than mortgage interest, and far faster to remove. Four buckets account for nearly all of them: overdraft interest (most high-street banks charge 39.9% EAR since the FCA’s 2020 reforms), packaged account fees (typically £10–£25 a month whether the benefits are used or not), spending abroad (2.75% on debit cards at NatWest, RBS and HSBC, up to 2.99% on credit), and the loyalty tax — staying put while banks pay £175–£220 to switch. An afternoon spent on all four is usually worth several hundred pounds a year, and unlike a mortgage it needs no broker and no paperwork.

This guide is part of the series that began with one household’s £20,000 annual interest bill. The mortgage guide covers the big number. This one covers the fast one.

1. Overdraft interest: the most expensive mainstream borrowing

The FCA’s overdraft reforms took effect on 6 April 2020 and changed how this works entirely. Banks must now charge a single interest rate expressed as an EAR, daily and monthly overdraft fees are banned, and an unarranged overdraft cannot be charged at a higher rate than an arranged one.

The reform succeeded at transparency and did nothing for price. Most major high-street banks converged on 39.9% EAR; Barclays sits lower at 35%; digital banks including Starling and Monzo use tiered rates that can start meaningfully cheaper. Notably, these rates have not moved down alongside Bank Rate.

What that costs, using the simple daily method banks apply (balance × EAR ÷ 365, charged monthly):

Overdrawn by	For	Cost at 39.9% EAR
£500	5 days	≈ £2.73
£500	Full month	≈ £16.40
£1,000	Full month	≈ £32.80
£1,000	Permanently, all year	≈ £399

Our own calculation on the standard daily formula, excluding any interest-free buffer.

The pattern in that table is the whole point. Occasional short-term overdraft use is cheap — a few pounds. A permanent overdraft, where the account never returns to positive and the balance simply sits below zero month after month, is one of the most expensive ways to borrow money in Britain, and it is often the least noticed because it never generates a bill.

Three practical routes out:

• An interest-free buffer. Several accounts include one, typically £250–£500. If the overdraft habitually sits within that range, switching to such an account removes the cost entirely.
• Replace it with structured borrowing. A personal loan at single-digit APR, or a 0% money-transfer card, costs a fraction of 39.9% — and has an end date, which an overdraft does not.
• Break the cycle once. A permanent overdraft is a one-month timing problem repeating forever. Clearing it once, even from savings earning far less than 39.9%, ends it permanently.

Worth knowing: if an account has been persistently overdrawn for a long period, the bank is required to make contact and offer help. That conversation is available on request rather than waiting to be offered.

2. Packaged account fees: cover you may already have

Packaged accounts charge a monthly fee — usually somewhere between £10 and £25 — for a bundle of travel insurance, mobile phone cover, breakdown assistance and similar perks. They are genuinely good value for some households and pure leakage for others, and the dividing line is simple: would you buy these products separately, and will you actually use them?

Pricing does move. Which? reported that the Co-operative Bank cut the monthly fee on its Everyday Extra account from £18 to £12 from 1 July, a £72 annual saving, making it the cheapest packaged account offering insurance benefits in that analysis. Which? also notes the wider trend has run the other way — fees rising and benefits being scaled back over the years.

The audit is a ten-minute job:

1. Multiply the monthly fee by 12. That is the real number, and it is usually larger than people expect.
2. List what the account actually includes.
3. Strike out anything duplicated elsewhere — travel insurance sold with a credit card, breakdown cover through an employer, gadget cover inside a home insurance policy.
4. Price what remains as standalone products.
5. If the standalone cost is lower than the annual fee, the account is costing money rather than saving it.

Two details that catch people. Bundled insurance carries exclusions that standalone policies may not — age limits, pre-existing medical conditions, trip-length caps — so cover that appears equivalent sometimes is not. And if an overdraft is in regular use, a standard account with a cheaper borrowing rate can beat a packaged account outright.

Banks are required to send an annual eligibility statement prompting a review of whether the account is still worth paying for. It is worth reading rather than filing.

3. Spending abroad: the 2.75% that hides in the exchange rate

This is the fee people are least aware of, because it never appears as a line item — it is folded into the converted amount.

Standard UK current accounts charge a non-sterling transaction fee on anything paid in a foreign currency. That includes card payments abroad, cash withdrawals abroad, and — the one that surprises people — online purchases from non-UK websites made while sitting at home in the UK.

Provider	Non-sterling transaction fee	Cash fee on top
NatWest / RBS (standard accounts)	2.75% debit	Varies; ATM operator may add its own
HSBC (other accounts)	2.75% debit / 2.99% credit	2% debit, min £1.75, max £5
Barclays	2.75% or 2.99%	Non-sterling cash fee, plus ATM charges
Lloyds (credit card standard)	2.95%	Varies by product

Fees as published by each bank. NatWest and RBS waive the fee on card purchases for Reward, Premier and Black account customers — though not on ATM withdrawals.

Which? illustrates how quickly this compounds on a standard TSB debit card, which charges 2.99% plus £1 per transaction, and 1.5% on cash withdrawals with a £2 minimum and £4.50 maximum: two £50 purchases and three £50 cash withdrawals produce £15.48 in charges. On £250 of spending. The flat per-transaction element is what does the damage — it makes small purchases disproportionately expensive.

Always decline dynamic currency conversion

When a foreign card machine or ATM offers to charge in pounds instead of the local currency, that is dynamic currency conversion, and the merchant or ATM operator sets the exchange rate rather than Visa or Mastercard. The rate is reliably worse, and in some cases both the bank’s fee and the operator’s markup end up being paid.

The rule has no exceptions: always choose the local currency. Euros in the eurozone, dollars in the US. This costs nothing to do and is the single highest-return habit in this entire guide.

The structural fix

Several UK providers charge no foreign transaction fee at all and use the Mastercard or Visa rate with no markup — Starling and Chase among them, and First Direct removed its foreign usage fees in 2023. Chase applies no markup on card spending and offers fee-free ATM withdrawals up to a monthly cap.

Opening a fee-free account purely for travel is legitimate and common. It need not be the main account — it needs only to be the card taken abroad. On a two-week holiday spending £1,500, avoiding a 2.75% charge is £41; over several trips a year, it compounds into a genuinely worthwhile amount for a one-off setup.

One caveat worth respecting: a credit card offers Section 75 protection on purchases over £100, which debit and prepaid cards do not. For significant bookings — flights, hotels, car hire — a fee-free credit card paid off in full is the better instrument.

4. The loyalty tax: the fee for staying put

The final cost is not charged, it is foregone. Banks pay meaningful sums to acquire customers and nothing to retain them, which means the reward for loyalty is structurally zero.

The Current Account Switch Service, launched in September 2013, has made this straightforward. Switches complete in seven working days, direct debits and standing orders move automatically, payments to the old account are redirected for at least three years, and the Current Account Switch Guarantee refunds any interest or charges incurred if something goes wrong. Forbes Advisor notes that 53 banks and building societies participate, covering 99% of UK current accounts.

Volumes remain substantial: CASS figures show over 1.2 million switches in the twelve months to 30 June 2026, including 288,999 between April and June 2026.

On what is available, Which? reported in July 2026 that nine cash incentives were live, with most banks paying between £175 and £220 and a Co-operative Bank offer worth up to £300 for eligible existing customers. Barclays’ own terms set its £200 offer for accounts opened between 9 June and 27 August 2026.

Typical conditions: a minimum pay-in within 30–60 days, two or three active direct debits moved across, sometimes a number of debit card transactions, and app-based opening. Previous customers are usually excluded, and most banks pay a given individual only once.

What CASS does not move

Two things need doing manually after a switch, and missing them is the main source of switching regret:

• Recurring card payments — subscriptions billed to the debit card rather than by direct debit (streaming services, delivery passes) rely on stored card details and will fail.
• Saved payee lists — anyone regularly paid from the banking app needs re-adding.

Budget half an hour in the fortnight after switch day to catch both.

One timing caution

A switch involves a credit application and a new account on the credit file. It is sensible not to switch in the weeks immediately before a mortgage application, where a stable and easily-evidenced banking history makes underwriting simpler. Switching a few months out is generally uneventful; switching mid-application is an avoidable complication.

The afternoon audit

In rough order of return per minute spent:

1. Decline dynamic currency conversion, permanently. Free, immediate, no admin.
2. Check whether the overdraft is permanent. If the balance never goes positive, that is 39.9% borrowing hiding in plain sight — deal with it first.
3. Total the packaged account fee for a year and strike out duplicated cover. Ten minutes, often £100–£300.
4. Open a fee-free card for travel if there is more than one trip a year.
5. Check the live switching offers. £175–£220 for an afternoon, provided the destination account genuinely suits.

None of this is clever. All of it is admin that banks are quietly counting on being skipped — which is exactly why it pays.

FAQ

How much does a UK overdraft actually cost?

Most major high-street banks charge 39.9% EAR since the FCA’s April 2020 reforms, with Barclays at 35% and some digital banks tiered lower. Interest accrues daily and is charged monthly. Being £500 overdrawn for five days costs under £3; being £1,000 overdrawn permanently costs roughly £399 a year. Short-term use is cheap; a permanent overdraft is expensive borrowing.

Are packaged bank accounts worth the monthly fee?

Only if the bundled benefits would otherwise be bought separately and will actually be used. Fees typically run £10–£25 a month. Which? found the Co-operative Bank cut its Everyday Extra fee from £18 to £12 from 1 July, making it the cheapest packaged account with insurance benefits in that analysis. Check for cover duplicated by a credit card, employer benefits or home insurance, and check exclusions such as age limits and pre-existing conditions.

What is a non-sterling transaction fee?

A charge applied when paying in a currency other than sterling — abroad or on a non-UK website. NatWest, RBS and HSBC charge 2.75% on standard debit cards, HSBC 2.99% on credit cards, and Lloyds 2.95% on its standard credit card rate. Cash withdrawals usually attract a further fee. Several providers, including Starling, Chase and First Direct, charge nothing.

Should I let a foreign ATM convert to pounds?

No. That is dynamic currency conversion, and the merchant or ATM operator sets the rate rather than Visa or Mastercard. The rate is consistently worse, and both the bank’s fee and the operator’s markup can end up being paid. Always choose the local currency.

How long does switching a bank account take?

Seven working days under the Current Account Switch Service. Direct debits and standing orders move automatically, payments to the old account are redirected for at least three years, and the Current Account Switch Guarantee covers any interest or charges caused by a failed switch. Recurring debit-card payments and saved payee lists are not moved and must be updated manually.