NEW overdraft rules come into force today that see banks charge up to 49.9 per cent interest – but some have delayed the pricey hikes due to the coronavirus crisis.
From April 6, banks are banned from charging daily or monthly unarranged overdraft fees, although they can still charge interest rates.
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This has seen the major banks and building societies reveal they’ll charge as much as 49.9 per cent.
But while these rules were set by the Financial Conduct Authority (FCA), just last week it said it wanted providers to ensure overdraft customers are no worse off on price compared to what they were charged before the changes.
Three in ten people – or 7.8million – will be in a worse position as a result of the new rules.
As part of the new temporary coronavirus guidelines, the FCA also wants providers to offer £500 interest-free overdrafts.
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It’s currently consulting on the proposals with a plan due to be implemented by the end of this week.
In the meantime, however, some banks have delayed introducing the new interest rates or cut rates for the next few months.
Here’s what’s happening.
Which banks have delayed overdraft changes or cut rates?
As you can see from the table above, Barclays, First Direct, HSBC, NatWest, RBS, and Santander have all revealed plans to temporarily reduce the interest charged on overdrafts.
Barclays
Barclays began charging customers 35 per cent interest on March 22, but as of March 27 it automatically waived all interest on its arranged overdrafts.
This will be in place until April 30 and it’s reviewing measures for after this.
Until March 22, Barclays charges daily overdraft fees.
First Direct
First Direct introduced its new 39.9 per cent overdraft rate on March 14 as planned.
It says it’s planning to temporarily reduce this rate, although it’s yet to confirm when this will happen or what rate it will charge.
Until March 14, First Direct charged 15.9 per cent on arranged overdrafts and daily fees on unarranged overdrafts.
It continues to offer a £250 interest-free overdraft as normal.
HSBC
HSBC’s new 39.9 per cent overdraft rate took force as planned on March 1, but it will reduce this back to its previous 19.9 per cent rate from April 9 until July 9 .
HSBC was also the first of the major banks to introduce a £500 interest-free overdraft last week.
NatWest and RBS
NatWest and RBS, which are both part of the RBS Banking Group, have delayed the introduction of their 39.9 per cent interest rate.
This was due to come into force at the end of March or beginning of April depending on your account.
Instead, as of March 30, they’ve kept rates at their current 14.89 per cent and 19.89 per cent level, and will do so until June 30.
Which rate you pay depends on the account you have.
Santander
Santander was due to up rates also to 39.9 per cent from today.
But it’s delayed the hikes and instead introduced a new 19.9 per cent rate in place from today until July 9.
It’s also launched a £500 interest-free overdraft.
Until today it charged daily overdraft fees rather than an interest rate.
TSB
TSB began charging 39.9 per cent interest on overdrafts from April 1.
But as of April 8 it will automatically introduce a new temporary 19.85 per cent interest rate.
In addition, the bank will introduce a £500 interest-free overdraft for customers already with an arranged overdraft – although you will need to actively apply for this.
Both measures will be in place until July 8.
The bank previously charged borrowers between 8.21 per cent and 19.84 per cent depending on the account.
Which banks haven’t delayed or cut overdraft rates?
At the other end of the scale, Bank of Scotland, Barclays, Halifax, Lloyds Bank, Monzo, Nationwide, Starling, and TSB have pressed ahead with new rates and have yet to announce plans to cut rates.
Bank of Scotland, Halifax, and Lloyds Bank
Bank of Scotland, Halifax, and Lloyds Bank, which are all part of Lloyds Banking Group, began charging users either 27.5 per cent, 39.9 per cent, or 49.9 per cent from today.
How much you’ll pay depends on your credit score and on the account you have, but Lloyds says it has no plans to cut rates at present.
That’s because it’s introduced a fee-free £300 overdraft to temporarily help struggling borrowers, which it says means all of its customers with an overdraft are now better off.
Previously, Lloyds users paid different rates depending on the size of their overdraft.
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.
Seek advice – If you’re confused then seek expert financial advice. Citizens Advice, StepChange or The Money Advice Trust will all help you for free.
Monzo
Monzo’s new 19 per cent, 29 per cent, and 39 per cent rates took force from April 1 – what you pay depends on your credit score.
It hasn’t cut its rate yet as it says it’s helping borrowers by temporarily freezing fees, setting up repayment plans, and not charging for bounced payments.
Previously, overdraft users were charged daily fees.
Nationwide
Nationwide introduced its new 39.9 per cent fee ahead of the curve back in November last year.
It doesn’t have any plans to cut its rate at present, and adds that borrowers can apply for an overdraft payment holiday in the meantime.
Previously, it charged 18.9 per cent interest on its FlexAccount for an arranged overdraft and daily fees on its other accounts depending on how much you were overdrawn.
Starling
Starling started charging 15 per cent, 25 per cent, and 35 per cent interest on overdrafts from April 1 – how much you pay, again, depends on your credit score.
It says it’s still reviewing the FCA’s proposals.
Prior to this it charged a flat rate of 15 per cent interest.
