A British Man's Take on Debt, Saving & Investing

American Banking v. English Banking

Posted on October 21, 2009 by Lee

There are a few interesting differences between the way English banks and American banks seem to function on a day-to-day level. I have been trying to decide which is best, but I have come to the conclusion that ultimately each has its good and bad points.


In America, it seems to be quite unusual to have an ‘agreed overdraft limit’. Rather, a checking (current) account holder can have ‘overdraft insurance’, which seems to cover  short-term budgeting errors.

Overdrafts are abused in England; some people take them as extensions of their paycheck and routinely ‘live in their overdrafts’, to the point that a paycheck merely takes them back to £0, before they start downwards into it again. Some don’t even make it back that far up the ladder month to month.

Banks love this of course. The interest charged can be as high as 30-odd percent, or in the case of the HBOS group, £1 per day in lieu of interest. Add that up over the course of a year or more and that is serious money being thrown down the drain for what is nothing more than dreadful money management skills.

My agreed overdraft is £1,500, and the first £250 of that is interest free. I haven’t entered it since January, but it is handy buffer for budgeting errors. The £250 interest free part comes with the account that I have, but the additional £1,250 beyond that just grew over the years with my account; Every once in a while they would push it a little further. It seems to have finally settled at the figure it is on.

Peculiar to my bank there is also a facility beyond the arranged overdraft called ‘Personal Reserve‘. It’s a £500 overdraft after your overdraft. Horrible little thing, it costs £22 per day to go in it, but I suspect if you need it, then it is handy to have.


Another thing I find peculiar about the American banking system is fees for using different banks’ ATMs. I have never been charged anywhere in the UK for using an ATM that didn’t belong to my bank – beyond those convenience stand-alone ATMs you find in small shops.

This could just be scale. The UK ‘grew up’ as one large piece of infrastructure, whereas America has been hacked together by different institutions in different states at different times. Or is it just one further method of extracting money from the unwary consumer?


I have written precisely 1 cheque in the last 5 years – no kidding! Cheques are pretty much extinct here in the UK. Shops have all but stopped accepting them as a form of payment. Yet I have never heard of a personal banking customer in the UK being charged for cheques –  this seems ‘the norm’ in the US? Companies such as Checks In the Mail even seem to print cute designs on them.

Online Billpay

Various blogs extol the virtues of using this system, and if you’ve only had doing the cheques yourself as prior experience, then I can understand. But it seems lightyears away from our Direct Debit system. If the company you are paying isn’t wired into the bank, the bank physically print and mail the cheque? Amazing.

Direct Debit while appearing insecure on the outside, is actually quite brilliant. Take my credit card as an example:

When I got it, I ticked the box on the online account to set up the direct debit. I punched in my bank account and sort code, and set to pay £120 a month. Just this month, it’s now set to “pay in full”.  I could equally set it to “pay the minimum” or somewhere in between. The billing party then submits a Direct Debit request through the banking network, and my bank sends – electronically – the amount requested.

If anywhere along the line there is a screw-up, the Direct Debit Guarantee immediately resets the transaction. I can cancel the Direct Debit authorisation at any time from my Online Banking menu, and ultimately, it’s a stroke of genius.

About the only thing you cannot set up a Direct Debit for in England is your groceries.


It seems there are banking fees abound in America – even if you run your account right. A fee for even just having a checking account. A fee for checks. A fee for a debit card. A fee if you go over a certain number of transactions. A fee if you have less than a certain amount in your account. A fee for this, that and the other.

I am shocked by this. About the only fee I have paid in the last 10 years for banking has been the odd bit of interest for going into my overdraft here and there. I’ve never paid for cheque books, debit cards, the account itself or anything else.

Perhaps I am just viewing the UK system with rose-tinted spectacles, or the US system isn’t nearly as bad as some blogs make out. Or, perhaps, I’m spot on; in which case, for once, I am glad to live in the UK!

I’m sure at least one of my American readers will set me right soon enough if I have got it wrong. 🙂


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2 Comments to “American Banking v. English Banking”

  1. fwisp says:

    To me it appears that all fees equal out between US & UK. As far as overdraft fees, banks here usually would charge per overdraft transaction anywhere from $30 to $40. That it is if you don’t have an “overdraft protection account”. CitiBank for example offers Checking Plus which is pretty much a credit line in addition to your checking account which is used when there you don’t have funds available. They charge interest and recently they also started charging a transfer fee ($10 I think) if they are doing the Checking to Checking Plus funds transfer for you (or you can do it yourself online prior to the transaction and avoid that fee). ATM fees are refunded back by some banks, like TDBank. Others still charge foreign ATM fees and the ATM company will also charge you anywhere from $2 to $4 per transaction. As far as checks I am not sure because I have not used any recently. Online bill paying works electronically in most cases, but they still do send checks to some payees who are not I guess participating in direct debiting.

    • Lee says:

      Hey fwisp, welcome.

      Interesting points, thanks for filling in my knowledge. It seems our “approved/arranged overdraft” is the same as your “protection/plus” just with different terminology.

      We get foreign (country!) ATM fees which is what I first thought a blogger meant when I saw it, but I later learned he meant foreign as in ‘not my bank’.


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