From 1st September a system which helps people avoid being hit with late payment charges on their current account will be extended.
It gives bank customers the chance to top up their account if a direct debit or standing order fails. The bank then processes the payment again later the same day. The move could save some customers hundreds of pounds in bank charges each year.
Let's take a look at how same day “retry” works.
What’s the problem?
Normally when a standing order, direct debit or future-dated payment ‘bounces’ because of insufficient funds in the account, the account holder is charged an "unpaid item fee". This can be anything from about £6 to £15 depending on the bank.
Penalty fees under this system have been estimated to cost people as much as £200 million a year. But you could incur penalties from the companies whose bills remained unpaid too – in some cases your credit record will be affected too.
The Financial Conduct Authority (FCA) decided the old system was unfair because payments such as direct debits tended to be processed first thing in the morning, without taking into account any new credits or salary payments made later in the day.
The retry system
The Payments Council, the organisation responsible for overseeing different kinds of payment services, is behind the retry system.
Seven banks have been trialling the system since last year, but from 1st September lots more institutions will be coming on-board.
The process means that when a payment fails the first time it will be processed again by the bank or building society later the same day. This gives you the opportunity to pay cleared funds into your account, which will allow the “retried” payment to be successfully processed the second time around.
However cheques aren’t included in the retry scheme so you could still be charged for a bounced cheque.
All participating banks and building societies will give customers until at least 2pm to pay cleared funds into their account, but this is the minimum that they will offer – some may offer a later cut-off time.
Which banks are taking part?
The following banks will now be implementing the retry process:
- Adam & Company
- Allied Irish Bank (GB)
- Bank of Ireland
- Bank of Scotland
- Barclays Bank
- Clydesdale Bank
- Co-operative Bank
- Coventry Building Society
- Cumberland Building Society
- Danske Bank
- First Direct
- First Trust Bank
- Intelligent Finance
- Isle of Man Bank
- Lloyds Bank
- M&S Bank
- Nationwide Building Society
- Royal Bank of Scotland
- Tesco Bank
- Ulster Bank
- Virgin Money
- Yorkshire Bank
If your bank isn’t on the list, why not switch to one that is? You can compare current accounts in our current account centre.
Managing your money
If you need to make use of the retry service you need to know the quickest way to pay cleared funds into your account.
The fastest way is paying by cash into your own bank. Another option is to make a "Faster Payment" via your online or phone banking service. Different banks have different limits for Faster Payments so check your bank’s limit.
If you have a cheque to pay in, it won’t make any difference when the payment is retried. Cheques take six days for funds to clear.
If you find yourself repeatedly relying on retry to avoid bank charges, review your outgoing payments. If any are regularly leaving your account on an inconvenient date, move them to a more suitable day. You can keep on top of your spending habits with lovemoney.com's MoneyTrack tool.