1 Reclaim bank charges

MORE than 1m people are challenging banks’ punitive overdraft fees through the courts or the Financial Ombudsman Service, ahead of an expected ruling by the Office of Fair Trading (OFT) that the charges are unfair.

The ombudsman said last week that it is receiving about 1,000 complaints a day about these fees alone.

Banks are already thought to have paid out about £50m to customers who have gone to the ombudsman or threatened court action, rather than defend the fees. The average refund is about £1,000 but some have received much more. The highest known refund is £17,900.

If you go overdrawn by accident or have a direct debit refused because there are insufficient funds in your account, your bank will charge you between £20 and £30 for the mistake. The fees can quickly add up to hundreds of pounds because banks will charge you each time a direct debit or standing order is refused or a cheque is bounced while you are overdrawn.

Stephen Hone, of penalty-charges.co.uk, said: “If you’ve got four or five direct debits going out over a couple of days and a payment is late going into your account, you could find yourself being hit with hundreds of pounds worth of charges very quickly.”

The OFT is expected to rule that the fees should be much closer to the administration costs involved, say about £10 or £12. In the meantime, anyone who has been hit by a penalty charge is being urged to demand a refund from their bank or building society because institutions are not challenging cases ahead of the OFT’s decision.

In some instances, you could get the full amount back plus the interest.

You can claim back any charges you have paid over the past six years. Write to your bank and ask for a list of all the fees it has levied. Once you have all the details, tot up the total cost and send another letter, asking for the money to be refunded.

You can download template letters from websites such as pen-altycharges.co.uk, which.co.uk/ bankcharges.co.uk or money-savingexpert.com.

Average saving: £1,000

2 Claim for credit card fees

The OFT has already forced credit-card firms to cut the fees they charge when customers are late making a payment, or exceed their credit limit. Many levied penalty charges of between £20 and £30, but the OFT ruled last year that such fees should be no more than £12.

You can reclaim any credit-card fees you have been charged over the past six years simply by writing to your card provider. Emma Bandey at Which?, the consumer lobbyist, said that most are refunding the difference between £12 and the amount you were charged.

However, she added that you could hold out to get the whole fee refunded. While the OFT said it did not believe companies could justify levying penalty charges of more than £12, you could challenge even this through the small-claims court.

Template letters are available at which.co.uk/bankcharges then “credit card charges”.

Average saving: £500

3 Reclaim mortgage fees

The Financial Services Authority (FSA), the City watchdog, announced last month that it is clamping down on exit fees - the charge levied when a mortgage is redeemed.

Exit fees have surged by about 350% over the past decade, from about £80 to about £200. Some lenders charge even more to close a mortgage account. Alliance & Leicester has the highest fee at £295.

The increases have angered consumers because many find they are paying far more than when they first signed up for their deal, and the FSA has ruled that this is unfair. It has given lenders four options: they can charge no fee at all; reduce their current fee; levy the charge that was applicable at the time the loan was taken out; or, if they increase it during the term, they must be able to justify it to the regulator.

Mortgage providers have until Wednesday to announce what they will do. Most are choosing to fix the fee at the outset so borrowers know exactly what it will cost them if they redeem their loan. A few, including Portman and Hinckley & Rugby building societies, have chosen to cut their exit fee.

Anyone who has been charged an exit fee that went up during their mortgage contract should claim a refund — not the full amount, but the different between the fee at the start and end of the deal. Borrowers are expected to be refunded between £100 and £200.

To claim your money back, check the fee specified in your original contract and, if you were charged more, write to the lender and ask for a refund.

Average saving: £150

4 Cancel payment protection cover

The Competition Commission has recently launched a full-scale inquiry into the industry, after an OFT investigation concluded that consumers have been stung for £1 billion through the sale of expensive payment protection insurance (PPI) policies. These cover your loan repayments if you are unable to work due to an accident, sickness or redundancy.

However, the cover is complex and riddled with exclusions which are not explained at the point of sale. Stress and back pain, for example, are not usually covered and the self-employed are routinely excluded.

Policyholders are often unaware of the exclusions until they make a claim. The FSA has fined two providers in recent weeks - GE Capital, the store card giant, and Capital One, the loan and credit-card company - over concerns about sales practices and other firms are expected to face fines over the coming months.

If you already have PPI with your loan provider, but it was not properly explained, you may be able cancel it and claim your money back.

Claire Oldstein at the Post Office said: “People with a protected loan should call their lender and ask what they might receive if they cancelled their cover but kept the loan. The refund could be £1,500 on a loan of £7,500 over five years.”

Analysts say credit-card protection is practically worthless because it only covers the minimum monthly payment. Theresa Fritz at Which? said: “Most people should cancel their card protection before they waste any more money on it - they would be better off with a comprehensive protection policy.”

Fritz added that when you cancel your cover, you should also ask your card provider how much you have paid for the insurance (if you have all your old statements you can do this yourself).

If you believe you were mis-sold the cover or it wasn’t explained to you properly, you should write a letter asking to have the money refunded.

Average saving: £1,500

5 Don’t buy your bank’s debt cover

If you decide you still want protection insurance despite the exclusions, under no circumstances should you buy it from your bank.

About 7m PPI policies are sold every year and it is one of the biggest money-spinners for banks: Lloyds TSB and Alliance & Leicester (A&L) are thought to make about 14% of their profits from the sale of these policies, according to Credit Suisse, an investment bank.

PPI can increase the cost of your loan by thousands of pounds because it is usually added upfront, so borrowers pay interest on the insurance as well as the loan.

Figures from moneysupermar-ket.com, a price-comparison site, show that a 35-year-old male borrowing £7,500 over five years from A&L, which is offering a leading loan rate of 5.9%, would pay an extra £29.70 a month — £356 a year — if he took PPI. If he took out cover instead from secu-rityfirst.co.uk, a stand-alone PPI provider, he would pay just £3.68 a month. Over the five years, this would save him £1,561, or about £310 a year.

Average saving: £310

6 Switch your credit card

If you have an outstanding balance on your credit card, check what rate of interest you are being charged.

Many high-street banks charge standard interest rates in excess of 16% — three times more than the Bank rate of 5.25%. By moving your balance over to a 0% card you could save yourself hundreds of pounds.

First Direct charges 19.9% on its classic card. Someone owing £2,000 on their card who only paid off the minimum each month would pay £339 in interest over 12 months.

They could cut this to zero if they moved the debt onto a Virgin card, which has a 13-month interest-free period for balance transfers.

Virgin does charge a 2.98% transfer fee, which will be added to the balance. Its standard rate of interest is 15.9%, so you should move your money over to another 0% deal if you have not cleared your debt by the end of the interest-free period.

Average saving: £340

7 Pay by direct debit

Even though credit-card companies have been forced to slash penalty charges, most still levy a £12 fee if you are late making a payment. An easy way to avoid this is to set up a direct debit as this guarantees that your monthly payment will arrive on time.

Most providers give you a choice when arranging a direct debit so that you can pay your balance in full each month, pay a set amount, or just pay the minimum.

If you opt just to pay the minimum, you can always make an additional payment.

Average saving: £36

8 Boost your savings rates

Most big banks and building societies pay paltry rates of interest on some of their savings accounts.

Halifax’s Liquid Gold account pays 0.96%, Alliance & Leicester’s Instant Access account pays between 0.55% and 1.05%, depending on the balance, and HSBC’s Instant Access Savings pays between 1.69% and 2.09%.

Someone with £10,000 in savings could boost the amount of interest they earn over a year by £373 if they moved their money from HSBC’s Instant Access Savings account to Icesave’s account, which pays 5.7% on balances above £500.

Average saving: £370

9 Remortgage

If you are paying your mortgage lender’s standard variable rate (SVR) you could save thousands of pounds a year by switching to a better deal.

Someone with a £200,000 interest-only loan could see their monthly payments drop from £1,223 to £857 if they switched from Abbey’s SVR, which is 7.34%, to Halifax’s two-year fix at 5.14%. This would mean an annual saving of £4,400.

The Halifax deal, available through brokers, is only open to those remortgaging. It is available for loans up to 90% of the property’s value and there is a £999 arrangement fee.

Borrowers receive a free valuation and free legal work.

Average saving: £4,400

10 Dump your investment fund

Banks and building societies have a bad track record when it comes to equity investments.

Justin Modray at Bestinvest, an independent financial adviser, said: “High-street banks are the poor relation in the fund-manage-ment world. They typically offera narrow range of overpriced, mediocre funds. Investors would do far better to look at the wider marketplace.”

Someone who invested £7,000 in Nationwide UK Growth five years ago would have seen the value of their investment rise to £9,494. The Abbey UK Growth would now be worth £9,644.

However, if the money had been invested in Invesco UK Aggressive, it would have surged in value to £18,248 - an extra £1,750 a year. Another fund Modray likes is Rensburg UK Select Growth - £7,000 invested in that five years ago would now be worth £17,825.

Averagr saving: £1,750