In 2019, the bank regulator, the FCA, announced new rules about overdraft charges. It called these:
the biggest shake-up to the overdraft market for a generation.
Banks had to change their overdraft charging before April 2020. In January 2020, the last of the banks announced how they were changing their rates.
In 2020 the FCA admitted that about 8 million people will be paying more under the new charges, not less. Hardly the big change in favour of consumers the FCA was hoping for.
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Who has gained and who has lost?
In general, the gainers from the new charges are:
- people who dip into their overdraft a small amount one or two times a month. They are likely to pay less because the “fixed fee” elements are going.
- people with unauthorised overdrafts. They should see their charges drop a lot, but the banks may be less willing to let them carry on with such large overdrafts.
The losers are likely to be the people who are “repeat users”, spending much of the month in their authorised overdrafts. The higher interest rates for them will add up to more than the small gains from getting rid of the fixed fees.
UPDATE in 2023, the FCA estimated that overall its changes have saved customers about a billion pounds. But although some people have benefited a lot, millions have lost out.
New fees are SIMPLER but often HIGHER for many customers
The new rules mean that banks:
- can’t charge more for an unarranged overdraft than an arranged one;
- can only charge a single interest rate on overdrafts; and
- can’t add a monthly or daily fee for being in your overdraft.
These are all very welcome changes.
With the new simple charging from April 2020, every bank will have to publish the APR on its overdraft. This will make it clear how expensive the overdraft is and also make it easy to see if another bank would be cheaper.
But the FCA didn’t say they had to reduce fees, just simplify them
Banks make huge amounts of money from overdraft fees – £2.4billion in overdraft fees and charges in 2017.
Debt advisers thought the FCA should have forced banks to cut fees by putting a “cap” on what banks can charge, which worked well for payday loans.
But the FCA decided to rely on simpler charges hoping that will make it easier for people to compare what different banks are charging and competition will bring the charges down.
I don’t think that competition will result in banks cutting overdraft charges. People who regularly pay overdraft fees are usually in a difficult financial situation. They aren’t the customers that banks compete hard to get!
How the banks are changing their overdraft charges
Here are the details in order as the banks announced them over a period of several months:
Nationwide – new rate is 39.9%
Nationwide was the first bank to bring in the new charges:
- bringing in a single overdraft rate of 39.9% for its accounts with overdrafts (FlexDirect, FlexPlus and FlexAccount)
- scrap all unauthorised borrowing charges and paid and unpaid transaction fees
- remove the £250 fee-free buffer offered on FlexPlus authorised overdrafts.
The FlexAccount currently has a 18.9% charge for authorised overdrafts, so all customers who used an authorised overdraft will be paying double under the new charges.
A Nationwide spokesperson said: “A third of our overdraft borrowers will pay less or the same.” Of those that will pay more, 75% will pay a maximum of 20p a day more than they currently pay.
Nationwide has a calculator where you can compare what you are were charged to what the new rates wil be if you can summarise how much your overdraft is used, eg “£200 for 8 days a month”.
HSBC & First Direct – also 39.9%
HSBC are:
- removing the £5 daily usage fee for unarranged overdrafts
- charging 39.9% interest on arranged or unarranged overdraft
- reducing the monthly maximum charge for using an unarranged overdraft to £20.
HSBC has been charging 9.9%-19.9%, so this is a very large increase for people who use their overdraft a lot. First Direct has announced the same charges as HSBC, its parent bank.
M&S – another at 39.9%
M&S has announced its new charging. from 14 March – it’s a flat fee of 39.9%.
But they are increasing the fee-free amount to £250 from £100, so that will help people who don’t use a lot of their overdraft.
Starling and Monzo – charging more for people with a poor credit score
The two new challenger banks have taken a different approach. Monzo will be charging 19%, 29% or 39% depending on your credit score. Starling will be charging a bit less at 15%, 25% and 35%.
RBS and NatWest – guess what, 39.9%
RBS and NatWest (part of the same group) are making a raft of changes to their various types of account:
- scrapping the flat fees for arranged overdrafts (£6 a month) and for unarranged overdrafts (£8 per day),
- scrapping the fee-free buffers (except for their Graduate accounts), and
- increasing the interest rate on arranged and unarranged overdrafts to c.39.5% on most accounts, except for Premier Select And Reward Black accounts which be charged c. 19.5%.
The losers will be the heavier overdraft users, who will pay a lot more in interest and not benefit much from not paying the flat fees, and infrequent users who always stayed within the fee-free buffer.
Barclays – only 35%!
Barclays is replacing its current tiered daily charges (75p per day for overdrafts up to £1,000; £1.50 per day for overdrafts of £1,000 – £2,000; and £3 per day for overdrafts over £2,000. ) with a single interest rate of 35%.
Santander – another at 39.9%
Santander is replacing all its current different sorts of charges with a single rate of 39.9% on arranged and unarranged overdrafts. It says “Anyone using an arranged overdraft of less than £1,065 will pay less than they do today.”
TSB – surprise, surprise it’s 39.9%
It’s scrapping its current complex web of charges and says the new 39.9% rate will be cheaper for about 70% of its customers. But that means it’s going to be more for 3 out of 10, so if you are one of them, this could prove expensive for you.
Lloyds & Halifax – most 39.9% but some will pay 49.9%
Lloyds & Halifax previously had very high charges and say “As a result of these changes, 90% of customers with an overdraft will pay less than they do today. ”
Most people will pay 39.9% or, if they are Club Lloyds customers, 27.9%. But some people will pay a high 49.9% because of their credit score or the way they have operated their account – which sounds a bit vague.
Lloyds says you will be told in advance if your rates is going up – but this feels to me like hitting customers who are in financial difficulty. And what if your credit score has been ruined by something you knew nothing about?
Competition, what competition?
I was sceptical that banks would rush to have lower charges than the other banks.
And there hasn’t been much sign of it in practice… almost all rates are in the 35-40% area.
Now a firm can’t just decide to charge the same as another firm – that would be against competition policy in the UK. But at first sight that looks like what has happened.
Your options with higher fees if you can’t clear the overdraft
You can’t rely on your bank stepping in and helping you at some point. If your charges are going up, I think you should look at what you can do now to improve your situation
Overdrafts are a very hard type of debt to get rid of. Unlike a credit card, which you can stop using, the fact you have credits and debits arriving all the time can make it hard to reduce overdraft usage by a bit each month.
For many people with a poor credit record and a large overdraft, one practical way forward is to get a new basic bank account, switch to that for your main banking and just see your old bank account as a debt to be repaid.
But if your bank has given you a credit limit that is so large you can’t clear it,the high charges make this even worse. If this trap has been going on for over a year,you may be able to win an affordability complaint – this can get you a refund of fees and interest charges .
See Problem overdraft? How to ask your bank for a refund of interest which explains more about the reasons to complain and has a template letter you can use. Banks may reject good cases, but it’s easy to send a case to the Financial Ombudsman where a lot of overdraft affordability complaints are being won.
Debts keeping you awake at night?
Ask for interest refunds on all sorts of debt
The minimum credit card payment trap
Nick says
Nationwide, supposedly a more responsible bank, charges an outrageous £5/day (at least capped at £35/month) on unauthorised and 50p/day on authorised, the latter only being reasonable if you have a huge agreed overdraft or just use the facility for a few days. One sneaky trick that banks have (and I found this with First Direct) is that they will refuse to stop payments that will take you into unauthorised overdraft, so that they can charge huge fees on small ODs, so your point about having a basic bank account is a good one. First Direct refused point blank to refuse payments when I was in financial difficulty, landing me with a bill of about £200 for 2 months of a £50 OD for a payment I didn’t need to make and had assumed would be refused. This annoyed me so much that I closed my FD account after 10+ years with them.
So I think that all banks should be required to allow customers to have the option to require payments that would take them into overdraft to be bounced.
Having said that, it doesn’t seem unreasonable to me in principle to allow banks to charge more APR for unauthorised ODs, but capped at say 50%. What will be the point of having an authorised one? I suppose it will at least avoid black marks on your credit score.
Tan says
Dear Sara,
Since 2008/2009 I have had two overdrafts, one with Lloyds and another with Barclays.
I am charged nearly a £1000 per annum by the banks and £12 fees at a time by Lloyds when a Direct Debit is returned. I have also had charges for going over my over draft (unplanned OD), a good few times. Basically I live on my overdraft, ever since I got caught with pay day loan trap since 2009.
I came across this article, which does provide advice on reclaiming bank charges and fees:
https://www.moneysavingexpert.com/reclaim/bank-charges/. …. I realise it’s slightly different to 10 years ago and may not be as easy. But I would like to give it a try but need your advice please. ……:
Sara (Debt Camel) says
Yes you can try to reclaim these charge as the MSE article says.
But you cannot rely on this working, not all these complaints succeed. And it could take a long while if the case has to go to the Financial Ombudsman.
So in the meanwhile you need to get yourself into a better position as the last paragraph of the article above suggests.
And if you have used payday lenders a lot, I suggest at the same time you try to reclaim money from them as the loans may well have been “unaffordable” if repaying one meant you had to take out another, or you had to keep rolling them. See https://debtcamel.co.uk/payday-loan-refunds/.
Kelly says
Hi I have continuously been in my £3500 sole overdraft and my husband and myself continuously in our £2000 joint account for over 13 years. We have at least £80 in interest per month, that’s not included in other charges from Natwest. We have tried to consolidate debts by having a loan from them but each time they refuse and we continue to pay this interest. Do you think we could be entitled to a refund of some/allof the interest we have paid every month for years?.
Sara (Debt Camel) says
Have they increased your overdraft limits during this time?
Do you have other debts as well that you can’t pay?
Kelly says
Yes they have been increased over the years but not for a good few years. I’ve also had loads of payday loans over the last few years that I’ve missed payments on aswel as other credit.
Sara (Debt Camel) says
I think you may find it hard to get much back.
MSE has a good page on reclaiming overdraft fees: https://www.moneysavingexpert.com/reclaim/bank-charges/.
I have a page on unaffordable overdraft increases, but if you haven’t had an increase in the last 6 years, that is going to be hard: https://debtcamel.co.uk/refunds-catalogue-credit-card/.
If you have had a lot of payday loans, that is normally much easier to get refunds on, see https://debtcamel.co.uk/payday-loan-refunds/. If you can get money back there you can use it to try to clear some of the overdraft debts.
And if you are generally unable to manage with your current debt levels, then talk to StepChange about a debt management plan: https://www.stepchange.org/how-we-help/debt-management-plan.aspx and as part of this, move to new bank accounts, no overdrafts, and put the overdraft debts into the DMP. there NatWest should stop adding any charges,
Colin Bryant says
I am a Nationwide customer who like many people lives predominantly within my overdraft. I was led to believe that Nationwide had a maximum charge of £35 per month, yet I have just been charged £47 interest on top of the £5 o/d fee. Is this correct?
Sara (Debt Camel) says
what sort of account do you have? FlexAccount FlexPlus or FlexDirect?
Ian says
this will have a massive effect overdraft fees and charges are massively goin up if you use your overdarft a lot from say 15 to 20% to 39.9%. Just doesnt make sense if your in financial trouble and use your overdraft all the time its goin to put the vulnerable in a lot more crisis how do the fca sleep at night disgusting what they are letting the banks get away with.
Kate says
I am a Natwest customer, I live out of my £6000 overdraft and have done for years. I already pay around £86 interest every month. If my interest doubles I don’t know how I will manage. I asked if I could take a loan out to cover the overdraft last year but was told my credit rating is not good enough. What do I do?
I will try to find work but not easy at 68 years old. Help!!
Sara (Debt Camel) says
Can I ask if you have other debts as well? What is your pension like?
Amanda says
This has me totally confused. I have a nationwide select account. My husband in on sickness benefits. I have an overdraft of £100 which unfortunately I have to use on a monthly basis. At present I get charged £6 per month. How much will that charge go up monthly in april?
Sara (Debt Camel) says
Nationwide is the only bank that changed its charges late last year. https://www.nationwide.co.uk/current-accounts/compare has current rates
Jimbo says
Without checking the calc, apparently if your overdraft is under £250 on avg. per month then you’ll be better off.
Wes says
I’m with Bank of Scotland (Lloyd’s) and have just been hit with a 49.9% overdraft! The letter seems to make out that I’ll be paying less, I’m not convinced.
It also says that they’ve made this decision based on “information they hold on me” – is it worth asking for that information so I can check that it’s correct?? I’ve looked into a SAR but have never done one.
Bit miffed if I’m honest!!
Jimbo says
I don’t understand how 39.9% interest on a Nationwide overdraft is easier to understand than 50p per day?
I was living in my overdraft just because I’d transferred my overdraft limit into a share scheme because it was making me money even after 50p per day but then the £15.50 I was paying for 31 days became just under £70!
I’ve been with Nationwide for 18 years, the change honestly made me consider changing to somewhere like HSBC and scrapping the overdraft, at least I’d get £175 for moving to them.
J
Andy says
I had a letter about this two days ago. I was planning in trying to downgrade to a free basic account from a £10 month fee, one, as it stands they only provide returned payments protection against fees and would not enable my £50 max overdraft which was part of this pack apparently. A look at my situation over the last three years shows this on average protects me once a year or so from a charge of about £15 I think, so I was being charged annually £120 to “save” £15 , as this happens very rarely as I do not use dd’s the reason it used to happen was a delayed PayPal payment, I have since taken steps to stop that by ensuring the rare times I use this it comes from the account itself not from a card. Problem solved.
The good news seems to be (for my acc at least) they are removing the account fee. As I do not for reasons unknown get the tiny max overdraft only that insufficient funds fee protection it seems I may actually gain for a change. A welcome relief. I’m not sure if the overdraft would help or not, I’ve managed this long…
Elaine Coleman says
Daughter uses her £1000 overdraft with HSBC very month. I am worried how much interest she will be paying on this after March as she has little or no disposable income to try to reduce this or pay it off. I expect she has had notification of this from HSBC but as she is young, it has probably been ignored!
J says
Just a quick query, should an adverse credit file affect a bank’s lending policy/extending already in place overdraft facilities?(numerous defaults and dca’s on the file): If the account holder didn’t let the bank know of the credit file problem (mental health) but the account was on many occasions overstepping the arranged limit…is this not a red flag to a bank and one where they should at least be aware/check the credit file/review the status of the account holder and go on to contact the account holder with a view to reducing their indebtness to the bank?
Credit file, 2002 to 2010 was hopeless, numerous defaults and credit entries on various debts maintained by DCA’s (no ccj’s) during this time the main bank account of the then debtor was allowed to continue with an high limit o/d (7k), during 2005/6/7 their were a plethora of charges added to the overdraft for exceeding the 7k o/d (unarranged) and where the account holder then brought the od back into the under 7k arranged territory
I only found the credit references a couple of hours ago after digging through the account holders lofted papwwork, I was of a mind to include/try to add them (credit refernces) in the complaint (it’s ongoing at the moment)
(I’m aware of time limits but the account is something that is being looked at)
I should add the account holder is still o/d by the same amount they were 12+ years ago and with no activity on the account apart from servicing the interest each month, had it been stopped years ago (account annual reviews/credit checking the account/ account behaviour etc)
Sara (Debt Camel) says
The regulator’s rules tend to refer to making checks when giving credit or increasing a credit limit.
I think you may have difficulty arguing that a bank should have reduced a faclity of that is what you are suggesting? If they increased the facility, then yes, i think they should have considered if that was affordable for you. But these are very old problems so time limits could be problematic.
J says
I would of thought ( might be wrong) that with such a large o/d on a personal account, one that hadn’t fluctuated in/out of credit for years prior, where the o/d had gone beyond the limit into unarranged territory and where an account had no income paid into it for a few years prior also… that it would have triggered a process within the banks lending criteria to at least look:review the account, call in gbd account holder? But to do nothing?
Sara (Debt Camel) says
Those might be sensible things for a bank to do. Arguing that the bank broke the rules by not doing them is rather harder/
Briano says
Hi Sara, In light of the coronavirus job losses, cut hours etc has there been any mention of the recent overdraft charge increases by the banks? They seem to be assisting with mortgage breaks and credit cards etc but I have not seen anything mentioned about this.
Thanks
Sara (Debt Camel) says
The FCA recently wrote a letter to all banks reminding them that:
We wish to underscore that our rules require you to take measures to help and support those customers who are worse off because of these changes. This is important for all customers and particularly those who are or may be vulnerable.
That was pre coronavirus.
You are right that the banks haven’t made much mention of this. BUT I think you should phone, say you have been badly hit by coronavirus and their new overdraft fees are too high for you to afford and ask them to halt any overdraft charges for the next few months.
Dr Martin Edwards says
Just another money grab by the Banks. The Banksters are not interested in the social contract, just in making a profit. If we attempt to change our contract with the Bank unilaterally, we are in breach of contract. If the Bank varies it’s contract with us unilaterally, then it’s just a new contract.
Strain every sinew and get out of debt. It’s disgusting that an an arranged overdraft will now cost more than credit card. Even more astonishing is they charge a large arrangement fee every year for the privilege of allowing you to have the overdraft. It would be amazing if by a miracle all customers gave up on their debt addiction and then we’d see some competition. As things are, the Banks are all powerful with no sense of shame for the carnage they cause in society..
David says
I wouldn’t say I’ve had my head buried in the sand. I’ve just had so many spinning plates that I didn’t realise how affected I was by this until now.
I had a loan that I got it down to £3500 in 2019.
Basic math at the time meant it made more sense for me to pay the loan off with an overdraft because at the time my monthly overdraft charge was only £6, so that’s what I did. Then these changes happened and I wasn’t even aware of it until February 3rd 2021 (Yup, yesterday) because my plan was to pay off the overdraft £100 a month on top of the previous £6 overdraft charge once I knew I’d be able to afford it.
I’m meant to be able to afford it now, so now is when I checked, but of course I actually can’t afford it because I didn’t check that my bank have been casually taking their overdraft percentage since these changes were made.
I’m basically trapped at the dark end of this overdraft with a repayment option of almost double what I can afford to clear it in any reasonable time.
Heaven forbid I get sick, or I have to pay for another funeral. If I can avoid that for 3 years, Christmas bonuses and any overtime I can pick up might see me clear of this weird plug hole I’ve been circling without realising.