From HSBC to Barclays: how banks are hiking up overdraft costs to up to 50%
BANKS are making big changes to the way they charge customers for overdrafts - with some hiking up interest charges to almost 50 percent.
The changes are being made because of new Financial Conduct Authority (FCA) rules that come into force in April.
The new rules will ban lenders from charging rip-off fees, such as a flat monthly fee, for use of your overdraft and are designed in the long run to make the cost of using an overdraft more transparent.
But the banks can still charge interest on the amount you borrow.
And big lenders including TSB, Barclays, First Direct, RBS and Nationwide have all hiked up their interest rates in response to the crack down.
To avoid being stung with unexpected charges, read on to find out what changes they will make before the new rules kick in on 6 April.
Lloyds Banking Group
Lloyds, Halifax and Bank of Scotland all form part of the Lloyds Banking Group and each of the banks has made changes to their fee structure.
The way they calculate what you pay is a bit complicated because they charge you based on what level of risk they think you are, based on your credit history.
The fees also vary if you have a premium account that you pay to use.
But for their basic accounts, the banks will from April charge a base rate of 39.9 percent - which could increase up to an eye watering 49.9 percent based on your history.
The banking group says the new structure will mean more costs for around 10 percent of its customers.
But it says the majority will actually pay less overall.
If you do have a premium £3 per month Club Lloyds account, you'll pay 27.5 percent.
TSB
At the moment, depending on the account, TSB charges between 8.21 percent and 19.84 percent in overdraft costs - as well as a costly £6 monthly fee for using the overdraft.
Customers who dip into an unarranged overdraft are also hit with a £5 per day day charge if the overdraft is between £10 and £35 or a £10 per day charge if you go £25 and over - up to a maximum of eight times a month.
From 1 April this will change.
It will scrap the fees and charge everyone a flat 39.9 percent interest rate for both arranged and unarranged overdrafts.
TSB says 70 percent of its customers pay either the same or less - meaning 30 percent could be hit with more costly charges.
HOW ONE MAN WON BACK £2,500 FROM HIS BANK
Getting into debt can leave you in a really sticky spot, as lorry driver Leon Ray found out.
After taking out a £3,100 overdraft with the Bank of Scotland he was left struggling to repay overdraft charges of up to almost £1,682 a year
Banks are meant to look out for vulnerable customers. But the 29-year-old was able to easily increase his hefty overdraft at the same time as spending thousands on online gambling sites in the midst of a gambling addiction
After The Sun got in touch, the bank offered Leon a £2,516 refund in overdraft fees as a gesture of goodwill
Bank of Scotland told The Sun at the time he increased the overdraft he met all of their lending criteria, but they recognised some people’s circumstances did change and wanted to help
If you are struggling with a money issue, then The Sun Money team might be able to help. Get in touch by emailing [email protected]
HSBC
Millions of HSBC customers will see their charges change from March - which it says will leave the majority paying the same or less - but up to 30 percent paying more.
What customers will be charged depends on what type of account they have with the bank.
Customers with its basic, graduate or current account will see the interest they are charged hike up from 19.9 percent to 39.9 percent.
The bank is scrapping its daily £5 charge for unarranged overdrafts and capping the charges it does make on unarranged overdrafts to £20 a month.
There will be no cap on how much it can charge you for an arranged overdraft, though.
The costs also vary if you have a Premier, Jade or Advance account.
For a more detailed breakdown of these charges, read our story on HSBC here.
Royal Bank of Scotland and Natwest
Currently, most customers of RBS and its sister bank Natwest pay 19.89 percent in interest on arranged overdrafts above £10, plus a monthly fee of £6.
But the bank is scrapping this monthly fee and instead increasing the interest it charges to a flat rate of 39.49 percent on both arranged and unarranged overdrafts offered through its regular accounts.
It is also removing its £10 interest free buffer, meaning you'll pay charges more quickly if you do slip into the red.
It is capping the total amount it charges for unarranged overdrafts to £20, down from £80, though.
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Struggling to cope with increased overdraft charges? Email Sun Money at [email protected] and we will investigate
Nationwide
In November, Nationwide also increased the interest charged across all current accounts to a flat rate of 39.9 percent on any overdraft borrowing.
This is equivalent to 46p a day if you borrow £500 and has been increased from 19.84 percent.
Because the bank scrapped fees for unarranged overdrafts at the same time, it says customers who are negatively impacted will pay only 20p a day more or less - equivalent to £73 per year.
Santander
Santander's also scrapping its daily overdraft fees to introduce a flat interest rate of 39.9 percent from April 6.
Currently, Santander customers pay daily fees of £1 on overdrafts below £2,000, £2 on amounts between £2,000 and £2,999.99 and £3 if you're more than £3,000 in the red.
It also charges daily fees of up to £6 if users of its Everday or student accounts dip into an unarranged overdraft.
The new rate will apply to all current accounts, apart from the so-called Choice account, which will have a lower 29.9 percent overdraft rate but a monthly account fee of £10.
STUCK IN AN OVERDRAFT? HERE'S WHAT TO DO
Overdrafts are meant to be a short term solution - but many of us live in them day to day.
Depending on your circumstances you could save money by reducing your overdraft, paying it off, or even getting a loan instead.
Here's where to start:
Cut back on spending - Take a proper look at what you’re spending and create a budget. Work out where you can make savings and use that money to chip away at your overdraft instead. Reducing your overdraft means paying less in interest charges.
Move your debt - If you can’t afford to pay it off yourself it might be cheaper for you to pay off your overdraft with a loan or a credit card. But remember - applying for credit can impact your credit rating, and you must pay it off.
Change your bank account - There are plenty of banks to choose from and you can end up saving money if a competitor offers a better rate. Shop around.
Seek advice - If you’re confused then seek expert financial advice. or will all help you for free.
Barclays
Barclays bank is scrapping its daily overdraft flat fees to introduce a single interest rate of 35 percent in March.
Currently, Barclays customers pay daily charges of 75p for overdrafts of up to £1,000, £1.50 for overdrafts between £1,000 and £2,000, and £3 for overdrafts of over £2,000.
But from March 22, you'll pay a single interest rate of 35 percent on any arranged overdraft.
Customers will still be able to use its interest free £15 buffer, which stops you from being charged if you dip into the red.
And the change won't affect Barclays' student accounts, which come with a £3,000 fee-free buffer.
Overall, customers with larger overdrafts will be worse off under the changes, while those with smaller debts will enjoy lower costs.
Barclays says 94 percent of its customers won't see any increase at all.
First Direct
Currently, First Direct current account customers pay 15.9 percent in interest on arranged overdrafts of more than £250, or a £5 daily charge if they slip into their unarranged overdraft.
But from March, this will change. Customers will instead be charged a flat rate of 39.9 percent on both arranged and unarranged overdrafts.
The bank will also cut the maximum monthly charge from £80 to £20 per month.
First Direct told The Sun it estimates the "vast majority"; will be better off under the changes.
MORE ON MONEY
Struggling to make it to payday? There are things you can do to get through the rest of the month without reaching for an expensive loan or dipping into an overdraft - from making extra cash to getting help paying bills.
Families on benefits or Universal Credit may also be able to get extra discounts on things like travel, broadband and access to their local leisure centre.
And if you have a credit card, make sure you are making more than minimum repayments - or otherwise you could be signed up to a lifetime of debt.