FIRST Direct has become the latest bank to announce a hike in overdraft fees to 39.9 per cent from March.
Earlier this week, parent bank HSBC revealed the new charge for dipping into both arranged and unarranged overdrafts, up from 9.9 per cent for some customers.
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It follows Nationwide’s announcement in July, hiking overdraft charges by up to £73 a year from November 11.
Currently, First Direct current account customers pay 15.9 per cent in interest on arranged overdrafts of more than £250, or a £5 daily charge if they slip into their unarranged overdraft.
But from March 14 next year, users will instead be charged a flat rate of 39.9 per cent on both arranged and unarranged overdrafts.
The change won’t apply to those with a £250 interest-free arranged overdraft.
As part of the move, First Direct is also cutting the maximum monthly charge from £80 to £20 per month.
First Direct has roughly 1.5million UK customers, and it told The Sun it estimates a “vast majority” will be better off or unaffected by the changes.
How to cut down your overdraft costs
THERE are a few ways to cut overdraft costs, and which suits you will depend on your situation. Here are a few options advised by MoneySavingExpert:
Spend less each month – do a proper budget and have a look at what you’re spending on.
Could you cut your morning coffee, or go down a brand at the supermarket?
Or, are you paying too much on your bills – if you haven’t switched energy, insurance and broadband recently, then it’s likely you could save £100s or even £1,000s over a year.
Move your bills – this can be dangerous if you’re not disciplined, but if you move your bills to just before payday rather than just after, many will be in credit (or less in the red) for less of the month, meaning you’re charged less for the overdraft. But – remember those bills are coming out, so don’t treat it like you’ve extra money to spend.
Move bank account – there are plenty to choose from and you can end up saving money.
Shift your overdraft on to a money transfer card – and don’t build it back up again.
Try setting up “pots” – sort your cash at the start of each month, so you have a bills pot, a spending pot etc. Use this technique to make payments to your overdraft, eg £100 a month, treating it like any other bill.
The shake-up comes amid new rules being introduced from April 6 by the Financial Conduct Authority (FCA) that will see banks banned from charging rip-off overdraft fees, although they can still charge interest.
The much-needed crackdown comes after The Sun reported how borrowers are being charged more interest by banks for unauthorised overdrafts than if they took out a payday loan.
The Sun has asked major banks including Barclays, LLoyds Banking Group, NatWest and Royal Bank of Scotland (RBS) whether they plan to introduce similar flat rates.
A spokesperson for Lloyds Banking Group said it will ensure their products comply with the FCA’s requirements by the deadline, but didn’t share any details.
Santander told us it’s reviewing the reforms and will announce rates at least two months’ before any changes, while Barclays also refused to share any details.
NatWest and RBS haven’t yet got back to us, so we’ll update this article once we get a response.
Meanwhile, the move by First Direct has been slammed by disappointed customers on Twitter.
One user said this morning: “@firstdirect so you have hiked your overdraft interest rates.
“Tantamount to loan sharking preying on people that are already in debt. Not impressed.”
While another added: “I recently moved from Nationwide because they hiked up #overdraft rates to 39.9%!
“Now you’ve gone and done it too!! How can you justify this!?!?”
And a third said: “@firstdirect your new overdraft rates are punitive and an outrage.”
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Rachel Springall, finance expert of comparison site Moneyfacts, told The Sun: “This move seemed inevitable after Nationwide and HSBC announced their hike, but also disappointing as First Direct charged a reasonable rate of 15.9 per cent for borrowers.
“Starling Bank currently offer on the of the best overdrafts as an alternative at 15 per cent, so if consumers dip into the red frequently it may be worth considering.
“Unarranged expensive fees are being scrapped in favour of a rate of 39.9 per cent.
“In this sense then, you can see why customers who carefully plan their overdraft use will now be worse off as they were being charged a more reasonable tariff.
“Those who are struggling financially and hit their unarranged limit frequently will be much better off of course.”
Meanwhile, John Crossley, head of money at Compare the Market, added: “It is likely that we will see more providers follow in the footsteps of First Direct, Nationwide and HSBC as a consequence of the FCA’s shakeup of the overdraft market earlier this year.
“Consumers should keep their eyes peeled in case their bank makes similar changes in the coming weeks and months.”
Earlier this year, Lloyds Bank was slammed for making overdraft fees more expensive and complicated for customers.
Meanwhile, as of last year, rules forcing banks to alert customers via text message before they slip into the red came into force.
Then in May, Santander had to pay £1.4million to 20,000 customers who weren’t warned they’d gone into their overdrafts.
