Some overdraft borrowers will see charges double while others will make “astonishing” savings when new prices kick in, new analysis shows.
New rules for overdraft charging demanded by the City regulator take effect next month.
Financial information service Moneyfacts has tested how much someone borrowing £500 through an overdraft for a month would be charged.
Some will see costs roughly double to £14 but others will enjoy £60 savings.
Those facing more expensive overdrafts are almost entirely people who previously had an arranged overdraft facility.
- ‘Why are my overdraft costs doubling?’
Up until now fees have been complex, difficult to navigate and hard to compare, leaving some with large overdraft bills.
Single, simple overdraft interest rates are now being brought in ahead of an April deadline set by the regulator.
The Moneyfacts data shows many have been paying around £7 a month to borrow an agreed £500 for 30 days, but they might soon pay double to borrow the same amount for the same period.
“The much-needed overhaul of the charges has been a double-edged sword for some,” said Rachel Springall, from Moneyfacts.
This might prompt them to consider borrowing through credit cards or store cards instead, she said.
Others, who would breach their overdraft limit or go overdrawn without permission, could see “astonishing savings” as the “most extortionate fees” of the old regime were effectively being banned, she said.
In one example, a provider’s fees for an unarranged £500 overdraft for 30 days will drop from £100 to less than £10.
A number of banks will see their fees for a £500 overdraft drop by £60 or so to £14 a month – as the new rules state there must be no difference in charging between arranged and unarranged overdrafts, and specific daily or monthly charges are to be banned. This will hit the bottom line of many big banks.
“It will be interesting to see whether these new charges will be revisited in the coming months or if customers start to see other account perks slashed in light of the shake-up,” Ms Springall said.
The big banks’ new overdraft rates
- Nationwide has said it will bring in an interest rate of 39.9% in April, replacing a daily fee of 50p for arranged overdrafts
- HSBC’s interest rate will double from 19.9% to 39.9%
- Lloyds’ will be 39.9%
- Santander’s will also be 39.9%
- NatWest raised its to 39.45%
- Barclays is not far behind with 35%.
To put those interest rates into context, the average quoted rate for credit card borrowing is just over 20%, according to the Bank of England.
The regulator, the Financial Conduct Authority, said most High Street banks had set “very similar prices”, after it demanded changes to the system.
It has sent a letter to banks, asking them to explain what influenced their decision.
It also asked how the banks will deal with any customers who could be worse off following the changes.
It said some firms could reduce or waive interest for customers who are in financial difficulty because of their overdraft.