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New overdraft rates of up to 40% are meant to come into force today


Controversial new overdraft rules come into force today which would have seen some banks increasing overdraft rates to nearly 40 per cent.

The changes, announced before the coronavirus outbreak, mean banks can only charge one single annual interest rate for both arranged and unarranged borrowing.

But with more households’ under financial strain thanks to Covid-19, some are temporarily freezing rates at lower levels or rolling them back down to what they had been before they were increased.

Banking changes: New overdraft rules come into play today - but many of the big banking names have temporarily suspended up to 40% interest until later in the year

Banking changes: New overdraft rules come into play today – but many of the big banking names have temporarily suspended up to 40% interest until later in the year

The measures announced last year by the Financial Conduct Authority had seen many banks peg their new single overdraft rates at around 40 per cent – around double the rate some borrowers had previously been paying to use their arranged overdraft.

The FCA has subsequently asked for clear guidance as to how all of the major banking names came up with rates around the same level after a public outcry.

As well as the temporary freeze, many are also ramping up their zero-interest overdraft buffers, so borrowers may not pay anything in the short-term.

From Thursday, the FCA is expected to force banks to all offer short-term £500 buffers to help cover bills.

HSBC is temporarily halving its new 39.9 per cent overdraft rate, taking it back down to 19.9 per cent.

From April 9 for a three-month period, HSBC will also automatically increase its temporary interest-free buffer for millions of Bank Account and Advance Account overdraft customers to £500.

Which banks have announced changes to their overdrafts so far? 
Bank account  Old overdraft rate New rate for majority Fee-free buffer? 
Nationwide FlexAccount 18.9%  39.9%  No
HSBC Advance  17.9%  39.9%  Yes – £25 
First Direct First  15.9%  39.9%  Yes – £250 
M&S Bank  15.9%  39.9%  Yes – £250 
RBS/NatWest Select  19.89% (plus £6 monthly fee)  39.49%  No 
Monzo  50p per day above £20 19%/29%/39%  No 
Starling   15% 15%/25%/35%  No 
Barclays Bank Account  Tiered rate  35%  Yes – £15 
Santander  Tiered rate  39.9%  No 
TSB  19.84% (plus £6 monthly fee)  39.9%  No 
Lloyds/Halifax/TSB  Tiered rate  39.9%
(27.5% for Club Lloyds customers) 
Yes – £50 
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NatWest has frozen overdraft interest at current rates for personal customers for at least three months.

The temporary relief available for overdraft customers affected by the coronavirus outbreak varies between providers.

The new industry rules coming into force aimed to make overdraft pricing simpler and fairer according to the FCA, reducing the burden on some customers who have previously been paying high charges.

Firms will need to charge a simple annual interest rate – without additional fees and charges for using an overdraft.

The new rules should particularly help people who have paid high charges in the past for going into an unarranged overdraft.

The FCA previously found that unarranged overdraft fees are often 10 times as high as charges for payday loans and fall disproportionately on vulnerable consumers.

The regulator’s calculations suggested the cost of borrowing £100 through an unarranged overdraft would fall from a typical £5 per day to under 10p per day.

It also said in January that it expects firms to help people who borrow large amounts within their arranged overdraft, which could include reducing or waiving interest or agreeing a repayment programme.

What is your bank doing? 

Here is a round-up of what major providers have already announced about their new overdraft rates and the measures put in place for giving temporary relief to borrowers affected by coronavirus:

Barclays 

New rate: A rate of 35 per cent took effect on March 22.

Overdraft relief: Barclays is waiving all overdraft interest from March 27 until the end of April 2020, meaning no charges for customers to use their agreed overdraft. Interest will automatically be removed.

Barclays is reviewing measures after this date and will be communicating with customers shortly. 

Co-operative Bank

New rate: A rate of 35.9 per cent was due to come into force on April 4 – but this has been delayed until July 3.

Overdraft relief: Customers with an existing arranged overdraft will have the interest waived on up to £500 of arranged overdraft use until July 3.

HSBC UK

New rate: HSBC imposed a new rate of 39.9 per cent on March 14. But it is now temporarily reducing the rate charged above its interest-free buffer to 19.9 per cent.

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Overdraft relief: Alongside the rate reduction, HSBC said from April 9, for a three-month period, it will increase the temporary interest-free buffer for millions of Bank Account and Advance Account overdraft customers from £300 to £500.

Lloyds Banking Group

New rate: The majority of customers will pay 39.9 per cent (29.9 per cent for Club Lloyds). As the group takes a ‘risk-based’ approach to overdrafts, some customers will pay 49.9 per cent.

Overdraft relief: All customers will be able to have a £300 interest-free buffer from April 6 to July 6. 

As a result of this, Lloyds said all its overdraft customers would pay less from April 6. It said 90 per cent of customers would have paid less for their overdraft even if the £300 buffer across its accounts was not introduced.

Nationwide Building Society

New rate: Nationwide introduced a 39.9 per cent rate in November 2019.

Overdraft relief: The Society will not charge overdraft interest from April 20 until July 1 for those financially impacted by coronavirus. 

Customers can request a fee-free overdraft interest holiday by completing an online form. Nationwide will email or text to acknowledge requests.

NatWest Group

New rate: A rate of 39.49 per cent would have been introduced on April 1 for NatWest customers, and on March 30 for RBS and Ulster Bank customers. 

But customers will continue to pay their current rate of interest for at least three months, meaning a maximum of 19.89 per cent across arranged and unarranged borrowing.

Overdraft relief: As well as the rate freeze, the bank has also removed all other overdraft fees and charges, so all customers who use their overdraft for the three months from March 30 will pay less.

Santander

New rate: Santander previously announced it will be 39.9 per cent from April 6, however it plans to make a further statement in due course.

Overdraft relief: Santander previously announced a £350 interest-free overdraft buffer for three months from April 6. This means it will automatically waive interest on up to £350 of any agreed overdraft limit.

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Santander said last week: ‘We will be reviewing the FCA proposals as a matter of priority and will be announcing new measures to help our customers as soon as possible.’

TSB

New rate: TSB previously announced a rate of 39.9 per cent.

Overdraft relief: TSB has introduced measures including fees waivers or implementing an interest freeze on their overdraft.

It is looking to make changes to align with FCA’s guidance, effective by April 9.

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