Millions of Britons use an arranged or unarranged overdraft every year. However, new changes are coming into effect which means this could now become extremely expensive.
These overdraft changes come after a decision by the Financial Conduct Authority to ban daily overdraft fees and instead pay an annual rate. Furthermore, although some people do not view an overdraft facility as a debt, banks must now make this fact clear.
How does it affect me?
First, instead of your account provider showing how much money you have which includes your authorised interest amount, banks will now display your balance with the overdraft factored in.
For example, if you are £500 into your overdraft – but £100 in credit – your bank would have indicated you have £600 available. However, with the recent changes, the in-credit amount will be displayed as £100.
From the bank’s point of view, this indicates a customer’s actual financial situation. However, for those not expecting the changes, they may get a shock when checking their finances.
Secondly, the scrapping of daily overdraft fees may seem like good news to many but several banks have already compensated by hiking up their rates. For example, some providers are charging overdraft fees of almost 40%.
Although banks do not need to comply with this ruling until April 2020, the firms which have announced changes already (as of 19 December 2019) have been detailed below:
Overdraft Fees Before
Overdraft Fees After
Monzo
50p per day
19% / 29% / 39%*
Starling
15%
15% / 25% / 35%*
Nationwide
18.90%
39.90%
HSBC
9.9%/19.9%
39.90%
M&S Bank
15.90%
39.90%
First Direct
15.90%
39.90%
*As of 19 December 2019, Dependent on credit score.
