Banks to charge up to 49% for overdrafts – how will the changes affect you?
BORROWERS in their overdraft will see the fees they pay shaken up as new rules come into force next month - here's what's happening and how it affects you.
From April 6, banks will be banned from charging rip-off unarranged overdraft fees, although they can still charge interest rates.
This has seen the majority of major banks and building societies reveal they'll move to a 39.9 per cent interest rate - but some will charge as much as as 49.9 per cent.
And while seven in ten - or 18.2million people - will be better off as a result, city watchdog the Financial Conduct Authority (FCA) says, this means around 7.8million will be in a worse position.
With some banks introducing the changes sooner, we've rounded-up what you need to know.
What's my bank doing?
Lenders currently charge between £2 to £30 a month for an arranged overdraft, while unarranged fees can be much higher - up to £6 a day or £80 a month, which can add up to hundreds of pounds.
But as outlined in the table above, from at least April 6, banks must charge a flat-rate interest for both arranged and unarranged overdrafts, and most have opted for between 35 per cent and 49.9 per cent.
There are some exceptions though - Lloyds Banking Group, which includes Bank of Scotland, Halifax, and Lloyds Bank, as well as Monzo and Starling have taken it one step further by introducing so-called "risk-based" pricing.
This will see Lloyds charge 27.5 per cent for most Club account holders, 39.9 per cent for most other customers, while those with poor credit scores and a history of defaults will pay a much higher 49.9 per cent.
When it comes to digital bank Monzo, it will introduce three interest rates depending on your credit score - 19 per cent, 29 per cent, and 39 per cent.
While Starling will do the same, charging 15 per cent, 25 per cent or 35 per cent.
How can I find out what I'll be charged?
Banks should have written to all existing customers notifying them of the overdraft rate changes.
If you don't think you've been told, check your bank's website or call its customer services team for more information.
What if I can't afford the new charges?
Banks have been warned by the FCA to help customers with large overdraft debt.
It suggests banks and building societies waive or reduce interest or continue overdrafts at the current rate where people are struggling.
Alternatively, they could set up a repayment plan that could include moving borrowers to more suitable products, such as personal loans that will likely have much lower interest rates.
If you're struggling, contact your provider as soon as possible to discuss your options.
You might also want to consider taking out an interest-free money transfer credit card to repay the overdraft, so you end up owing the card instead.
The idea is you then repay the card before the 0 per cent period ends and you're charged interest.
Check out guide on how to shift debts onto 0 per cent balance and money transfer cards and use a pre-eligibility checking tool to see what cards you're likely to be accepted for before applying.
This reduces the risk of your credit score being dented by rejections and multiple applications.
Been unfairly charged? You may be able to claim the money back
If you've been hit by excessive overdraft charges and been pushed further into debt as a result, you may be able to get a refund from your bank.
While there are no rules that guarantee this, watchdog guidelines state that banks have a responsibility to treat you fairly.
Bank of Scotland repaid gambling addict Leon Ray £2,516 in overdraft fees after The Sun complained on his behalf.
More on debt
You can complain about charges that occurred as far back as six years ago, even if the account has since been closed.
Plus, it's free to submit a claim yourself - write to your bank first, and if that doesn't work or you don't get a response within eight weeks, take your case to the free Financial Ombudsman Service.
Here's everything you need to know about claiming back overdraft fees.