RBS and NatWest unveil blanket 39.49% overdraft rate as FCA defends changes which it says are ‘simpler, fairer and easier to manage’
- RBS and NatWest currently charge 19.89% plus a £6 monthly fee for overdrafts
- From the end of March this will rise to almost 40% – but without the fee
- The two are latest to raise overdraft rates in response to new rules
- FCA defends the changes, which some have blamed for banks raising overdraft rates
Royal Bank of Scotland and NatWest have become the latest banks to raise their overdraft rates to just shy of 40 per cent across the board, almost doubling them from their current rate.
The banks are also doing away with fee-free overdraft buffers which currently range from £10 to £500, though some borrowers may pay less as they are also removing its £6 a month usage fee.
The changes will come into force between 27 March and 2 April 2020.
RBS and NatWest have become the latest banks to hike overdraft rates will make big changes to their Reward accounts next February
It comes following a statement from the Financial Conduct Authority, with the regulator attempting to mount a defence of the crackdown on unarranged overdraft fees which some have blamed for the banks hiking rates.
Nationwide, HSBC, First Direct, NatWest and RBS have all set the cost of arranged borrowing at 39.49 per cent, up from interest rates which ranged between 11.9 per cent and 18.9 per cent.
The FCA claims: ‘Our changes will ensure overdrafts are simpler, fairer and easier to manage. The majority of people will be better off or see no change.
‘Our reforms are fixing a market where too often the vulnerable were missing out because of complex and disproportionate charges, especially for unarranged borrowing.’
The FCA’s intervention in the overdraft market requires banks by April to price them using a single interest rate to make them easier to compare with other credit products, and bans them from charging more for unarranged overdrafts.
|Bank account||Old overdraft rate||New rate||Fee-free buffer?|
|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|
The latter change came amid widespread concern those dipping into unarranged overdrafts were being charged extortionate amounts.
NatWest for example currently charges those who exceed their overdraft limit £8 a day, capped at £80 a month.
Under its changes, which became public yesterday, unarranged overdraft users will be charged a rate of 39.49 per cent from 2 April, with the cost of borrowing capped at £20 a month.
Banks have reacted to the new FCA rules by increasing borrowing costs for arranged overdraft users, seemingly in a bid to claw back the money they are set to lose.
Holders of RBS and NatWest’s Select account currently pay 19.89 per cent when they dip into their unarranged overdraft, plus a £6 a month usage fee, though the account comes with a £10 buffer.
From the end of March, they will pay 39.49 per cent with no usage fee, with the £10 buffer axed.
The changes are the same for all of RBS and NatWest’s current accounts, though student and graduate accounts will retain their buffers.
Combined with the fact RBS and NatWest are scrapping the 2 per cent cashback on bills available from its Reward accounts in February and replacing them with a less generous scheme, the changes make the current accounts from the taxpayer-owned banks less appetising for some.
The FCA added: ‘We’re banning charges that make overdrafts look cheaper than they are. It was often unclear exactly what people were paying for their overdraft – with a mix of interest rates as well as other fees and charges.
‘This will mean people know exactly what they will pay for their overdraft and easily compare the cost to those of other banks and building societies.’
The FCA says that borrowing £250 over seven days at 19.9 per cent would cost a little less than 90p a day, whereas doing so at a rate of 39.9 per cent would cost around £1.65 a day, an increase of 83 per cent.
Meanwhile, someone who went £20 into their unarranged overdraft with NatWest over four days would currently be charged £32.
After the changes come into force, they would pay just 7p, a drop of 97 per cent.
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