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Bank charges: what to consider

Charges can vary, so how do you know what's fair?

Charges vary according to the amount of money being borrowed, the degree of risk and security that is on offer for the bank and your stake in the business.

Interest rates can either be set at a fixed rate, which remain static for a set period, or variable. This will change according to the base rate used by banks to borrow money and will be set at a margin above that.

In addition, you may find that there are charges for arranging an overdraft or loan and you are likely to get a nasty surprise if you exceed the limits of an overdraft without authorisation or cannot make a payment under the loan.

The FSB found in its survey that members were paying high rates of interest. Some 27% of the respondents were paying at least 5% above the base rate. Members also complained about overcharging by the banks. One-third of members were overcharged by their bank but 90% had managed to get the money back.

The most common form of mistake is miscalculating interest, closely followed by wrong transaction charges. In one case, Anglia Business Associates found a farmer in the Midlands had been overcharged over several years by a total of £200,000.

It is worth setting aside some time to look at your charges. Take a few minutes to list the charges that go through your account. Compare this quarter with the previous quarter and check any discrepancies. If any of the charges have changed, ask your bank to explain them.

You are likely to get a nasty surprise if you exceed the limits of an overdraft without authorisation or cannot make a payment under the loan.

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