New changes to overdrafts are being introduced in the UK from April 2020, after the Financial Conduct Authority advised banks to stop charging excessive fees.
This means that most banks will be changing their approach to overdrafts by charging interest rather than a daily fee, which can become very costly for consumers who are operating an unarranged overdraft in particular.
Slashing these fees should ensure that consumers that are already struggling financially won’t be plunged further into debt by slipping into an unarranged overdraft. However, many banks might also end up charging slightly more for owners of arranged overdrafts.
What has changed?
There are key changes being introduced that will affect those who currently have an overdraft in the UK. They will be rolled out by most major banks from April 2020, in line with the new tax year:
- Daily or monthly fees will be stopped
- Single Annual Interest Rate (APR) will be charged instead
- Arranged overdrafts will be slightly more expensive than before
- Unarranged overdrafts will be cheaper than before
An interest rate will replace extortionate daily or monthly fees, but the rate will be exactly the same for both arranged and unarranged overdrafts. This means that whilst unarranged overdrafts will be cheaper, arranged overdrafts will actually end up being slightly more expensive.
Which banks are participating?
All major banks will soon be sending out updates to customers advising them of specific changes and outlining how the overdraft charges will be changing. This includes the following interest rates being announced for overdraft users:
- Barclays – 35%
- HSBC – 39.9%
- Lloyds – 39.9%
- Nationwide – 39.9%
- NatWest – 39.45%
- Santander – 39.9%
For more detailed information on your existing overdraft, get in touch with your bank to find out what they’re planning to change in April. If you would like to open a new current account, head over to our comparison tables using the link below.
Sources:
https://www.bbc.co.uk/news/business-51706329
https://www.moneyadviceservice.org.uk/blog/what-the-changes-to-overdraft-fees-mean-for-you