Finance

New overdraft rules cause confusion among winners and losers

Customers who will receive their bank statements in the coming months may be amazed when trying to find out whether they are winners or losers of new overdraft rules.

Some may be pleasantly surprised to see that the cost of how they normally write in the red has become cheaper, others end up paying significantly more.

Santander customers could benefit the most from this, as those who borrow £ 500 within 30 days will have to pay £ 13.99 from April, compared to £ 30 now, which is a saving of £ 16.

HSBC customers who hold the bank’s pre-checking account will pay £ 13.29 to borrow £ 500 for 30 days, compared to £ 6.81 now.

Lloyds and Barclays customers would pay less if they borrow GBP 500 for 30 days under their new overdraft rules … but nationwide FlexAccount and HSBC customers pay more

In recent months, banks have announced changes to their overdraft rules, forcing those who have switched to expensive daily flat fees in recent years to switch to interest-based fees.

However, since not all banks and accounts charge daily fees, some other customers have lost.

The situation meant that banks with daily fees made overdrafts cheaper, banks with traditional overdrafts, which were usually around 18 percent, more expensive – with interest rates rising to just under 40 percent.

Among the banks that charged daily fees, the cost of borrowing Lloyds Bank and Halifax customers will decrease from £ 24.90 to £ 13.99 in April, and Barclays customers will become Pay £ 49, after £ 22.50 to Moneyfacts.

Customers of the smartphone-only bank Monzo will now also be among the beneficiaries and are expected to pay GBP 7.20 for the loan of GBP 500 over a period of 30 days (previously GBP 15).

In what Moneyfacts called ‘Rachel Springall a’ double-edged sword ‘, some customers could now pay double.

For First Direct customers who borrow the same £ 500, the cost increases from £ 3 to £ 7, for M&S bank customers the cost from £ 4.88 to £ 7 and for Nationwide FlexAccount customers the cost of £ 7. GBP 17 to GBP 13.99.

Most bank customers won’t have such long overdrafts over long periods of time, but those who easily get into the red a few days a month and previously had standard overdraft rates of around 18 percent will pay more under the new fees.

Doubling or canceling: According to Moneyfacts figures, customers who borrow £ 500 over 30 days could pay double or even half if bank overdrafts change

Doubling or canceling: According to Moneyfacts figures, customers who borrow £ 500 over 30 days could pay double or even half if bank overdrafts change

Andrew Hagger, founder of Moneycomms, said the numbers showed how expensive the daily rates offered by banks were.

For example, Santander said that anyone who borrowed £ 1,065 or less would pay less under his changes.

Previously, £ 1 per day was charged for loans under £ 2,000, £ 2 per day for loans between £ 2,000 and £ 2,999 and £ 3 per day for loans over £ 3,000.

Someone who borrows £ 250 for three days is currently paying £ 3, but from April he would only pay £ 69.

While the FCA’s Moneyfacts numbers can offer some comfort that has come under fire for tackling overdraft fees that some have blamed for making the bank set the overdraft rates much higher, overdraft fees can according to the amount borrowed and how massively long they are borrowed.

Figures from Moneycomms show different scenarios and how people are doing better in green or worse in red

Figures from Moneycomms show different scenarios and how people are doing better in green or worse in red

Separate Numbers from Personal Finance Website Moneycomms found that customers who borrow lower amounts for a shorter period of time are likely to be better off with the exception of HSBC Advance and Nationwide FlexAccount customers.

The FCA wrote to the UK’s largest banks in January asking them to explain their overdraft changes following an outcry from customers who saw interest rate rockets.

The regulator is examining how banks rated their overdrafts, with three of the five largest banks setting overdraft rates at 39.9 percent, NatWest at 39.49 percent, and Barclays at just under 35 percent.

The Nationwide Building Society set its overdraft rate on all accounts at 39.9 percent.

Which banks have announced changes to their overdrafts so far?
Bank account Old overdraft rateNew tariff for the majorityFree buffer?
Nationwide FlexAccount18.9%39.9% No
HSBC Advance17.9%39.9%Yes – £ 25
First Direct First15.9%39.9%Yes – £ 250
M&S Bank15.9%39.9%Yes – £ 250
RBS / NatWest Select19.89% (plus £ 6 monthly fee)39.49%No
Monzo50p a day over £ 2019% / 29% / 39%No
star 15%15% / 25% / 35%No
Barclay’s bank accountGraduated price35%Yes – £ 15
SantanderGraduated price39.9%No
TSB19.84% (plus £ 6 monthly fee)39.9%No
Lloyds / Halifax / Bank of ScotlandGraduated price39.9%
(27.5% for Club Lloyds customers)
Yes – £ 50

This is Money’s sister title, which the mail found on Sunday. Customers who borrowed £ 1,000 for three weeks were only able to save £ 8.61 by switching from the most expensive to the cheapest bank. Before the changes, they could save up to £ 28.45.

Springall said: ‘Bank customers who dive into their arranged overdraft facility may find that they pay double the amount of fees because companies recalculate their tariffs to comply with the FCA ban on fixed fees.

“The much-needed revision of fees has been a double-edged sword for some, while Barclays, Halifax, Lloyds, Monzo, Santander, and Virgin Money are among the providers who demand less.”

She added that the FCA’s requirement to rate overdrafts on interest rates so customers can compare them to other forms of borrowing could result in some choosing credit cards or personal loans.

“It is clear that borrowers need to think carefully about whether an overdraft facility is the cheapest way to borrow, since a credit card could be a cheaper alternative – in fact, some business cards are now charging less,” she said.

“The lowest purchase rate for a standard credit card is 9.9 percent of the annual interest. Business cards currently charge up to 29.9 percent of the APR, and the average credit card rate on the market is currently 24.8 percent of the APR.

“Credit cards can be as convenient as using a bank account to borrow and provide additional protection under section 75 of the Consumer Credit Act.”

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