High street bank Barclays has announced that it is to "significantly reduce" its controversial overdraft fees, in a move that could rubbish claims over the "true cost" of bounced payments.

From August 18, Barclays' customers would have to pay only £8 for a returned transaction - far lower than present charges that can be as high as £35, but that have been described as fair by current account providers.

Barclays will also replace unauthorised overdrafts with a "Personal Reserve" which users can access for a charge of £22. Customers opting out of having the buffer zone will see payments over an agreed limit bounced, but will still only have to pay the reduced £8 charge.

The bank said that it had been able to reduce its charges as a result of "breakthroughs" in its handling systems. But this is likely to be seized upon by campaigners who have long claimed that fees of up to £35 are unfair and do not represent the actual cost to banks - which they believe could be as little as £2.50.

In April, the Office of Fair Trading won a High Court ruling over the issue, when a judge said fees were subject to "unfair contract" rules. It paves the way for a further hearing to decide whether charges are unfair and, if so, what a fair charge should be. Banks have since lodged an appeal over the High Court ruling.

Mark Parsons, managing director of current accounts at Barclays, said: "We have listened to our customers and acted on this feedback by completely revamping our unauthorised overdraft service, replacing it with the new Personal Reserve.

"Our customers wanted a simple, clear way of managing payments when they go beyond agreed limits."

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