Smart move cuts your overdraft cost

ARE WE in for another round of the current-account war? Judging by Barclays Bank's decision last week to halve the monthly fee it levies on agreed overdrafts, this is a possibility.

Barclays is reducing its charge from pounds 10 - which made it the most expensive among high street banks - to just pounds 5 a month. Of course, account holders will still have to pay a further swingeing 19.2 per cent on overdrafts.

The response has been muted so far. Other banks, including National Westminster, Lloyds, and Midland, all said they were "watching the situation with interest". At times, such initiatives can create a stampede.

Whether Barclays' cut succeeds will be measured by the number of accounts won and retained. Here the prospects may be mixed.

Halifax Building Society has attracted nearly 250,000 new customers to its Maxim current account in the past 12 months. One selling-point is its 12.4 per cent agreed overdraft facility, with no additional monthly fee. Nationwide and the Woolwich Building Society have also won new accounts with similar reductions in overdraft rates.

However, as sceptics often point out, the vast majority of the big banks' 30 million-plus account holders have tended to remain loyal to their banks, despite occasional gripes over poor service and high charges.

But if you are one of the 25 to 30 per cent of bank customers who go overdrawn at some stage each year and want to avoid needless heavy penalties, the solution is simple - switch your account.

This month's Inside Money, a financial magazine, offers tips on how to go about doing so.

o Shop around. MoneyFacts, a monthly guide to the best savings and mortgage rates around, publishes a full list. Single copies are available free by phoning 01692 500677. Annual subscriptions are also available. If you are overdrawn already, ask the bank you choose whether it is prepared to accept your account.

o Open the new account. You will probably need an initial deposit of between pounds 30 and pounds 60.

o Write to your employer giving the new branch sort code, account number and the date from which you want your salary to be paid into the new account. Include the name of your account. Send similar letters to other organisations making regular payments into your old account.

o Ask your existing bank - in writing - for a full list of all standing orders and direct debits. You should ask for the name of the organisation receiving payment, its bank or building society code and account numbers, the reference number for payment, the amount to be paid, frequency of payment, payment date and final payment date if applicable.

o Your old bank may want to charge you for this. Ask the new one if it is prepared to foot some or all of this charge. Some are prepared to do so.

o Send the list of standing orders you have to your new bank or building society, asking it to pay these from your chosen transfer date.

o Write to all the organisations paid by direct debit, telling them that you are changing your bank and need new direct debit forms. Fill them in and send them to the new bank.

o Write to the old bank closing your account, telling it to transfer everything to your new one by a certain date. Tell it no further direct debits should be paid from your account afterwards.

o Keep copies of all the correspondence.