One of Britain's biggest banks is ditching unauthorised overdrafts in a move which it claims will "significantly reduce" overdraft charges for most customers.

From Monday, Barclays will replace its charging structure for unauthorised overdrafts, introducing a "personal reserve" worth between £150 and £1,500 on top of an authorised overdraft or current account.

Customers who use the personal reserve will be charged £22 but will be allowed to make unlimited transactions for five days without their payments bouncing or being hit by further charges. Savers who exceed the personal reserve buffer, which will average £250, will have cheques and payments rejected and be charged £8 a time.

The new fees are lower than the £35 plus 27.5 per cent interest that Barclays currently charges on unauthorised borrowing.

These high fees, as well as penalty charges at other banks, have sparked a bitter battle with the Office of Fair Trading (OFT) and consumer campaigners.

Hundreds of thousands of current account customers have contacted their banks to reclaim hefty overdraft charges. An estimated £784m has been paid out to customers in out-of-court settlements in the past two years. Tens of thousands more people are believed to be awaiting refunds on charges.

The claims process has been put on hold since the OFT launched a court case to establish the legality of overdraft fees, and the banks were allowed to freeze repayments until it is settled.

The first round of the court battle went against the banks, and unsurprisingly they have launched an appeal. Banks are concerned that if the OFT is allowed to proceed, it could cap the fee for bouncing cheques or exceeding overdraft limits at a much lower rate. It could even force the banks to refund the difference between the charges they imposed and a new acceptable rate of penalties set by the regulator.

Barclays said that it has been able to reduce its charges as a result of breakthroughs in its handling systems, but consumer groups expect other banks to follow in an effort to stifle criticism.

Andrew Hagger at Moneynet.co.uk, a financial website, welcomed the changes. He said: "Five days should be sufficient for the majority of people to return their account to order or contact the bank to discuss the possibility of a temporary overdraft increase. The deal is fairer and a big improvement on the previous charging structure."

Moneynet found that, from Monday, Barclays will be the cheapest big bank for a £200 unauthorised overdraft for five days. Its charge of £22 compares to £25.52 at HSBC, £42.18 at Nationwide and £115.53 on the Lloyds TSB Classic current account.

Barclays' current account customers can opt out of having a personal reserve - the bank said that about 10 per cent of its current customers had rejected the offer. They will not be liable to the £22 charge but will see payments over an agreed limit bounced and have to pay the £8 charge.

The introduction of personal reserves is part of a wider overhaul of Barclays' current accounts which saw it scrap credit interest on standard accounts on June 1. The interest on authorised overdrafts rose to 17.9 per cent.

Barclays' 11m current account customers should already have received a letter informing them of the changes. If you haven't been contacted speak to your local branch, call telephone banking or visit the bank's website.