In our last article on overdrafts, we touched on the general changes being made as a result of the FCA rehaul of the bank overdrafts market. The Chief Executive of the FCA, Andrew Bailey, was appalled that high street banks were ‘causing significant consumer harm’, and passed new regulations outlawing daily and monthly fees for overdrafts. In 2017 alone, banks made over £2.4billion from overdraft fees with 30% coming from unarranged overdrafts alone.
However, the UK banking industry responded with new bank overdraft rules. The banks responded with new near identical responses and hikes to their overdraft fees that raised even more concerns for the FCA. We’ve compiled the overdraft changes and the new corresponding interest rates for proposed to go into effect in April for 10 UK banks.
10 top UK banks and their overdraft interest rates as of April 2020:
We’ve had a look at some of the top current banks available to you in the UK. Here’s a comprehensive list of what the changes will look like for each standard current account.
- Barclays: Annual interest rate of 35% on any arranged overdraft, with a £15 interest free buffer.
- NatWest/ RBS: Annual interest rate of 39.9% interest rate with a £25 interest free buffer.
- Starling: Annual interest rate of 15% – 33% depending on customer’s credit score.
- Santander: Annual interest rate of 39.9% interest rate.
- Nationwide (flexdirect account): Annual interest rate of 39.9% interest rate.
- First Direct/M&S Bank: Annual interest rate of 39.9% with £250 interest free buffer.
- Metro Bank: Annual interest rate of 34%.
- Monzo: Annual Interest rate of 19% – 39% depending on customer’s credit score.
- TSB Classic: Annual interest rate of 39.9%.
- HSBC: Annual interest rate of 39.9% interest rate with a £25 interest free buffer.
So what does the fee changes mean for me?
Reduction in cost for small arranged overdrafts:
Those of us who use an arranged overdraft of £50 over seven days will see their overdraft fee drop from an average of £1.99 to 18p, with five of the ten accounts reviewed now charging less under the new changes coming into effect.
Greater penalty for regular use of larger arranged overdraft:
Unfortunately, for those of us that tend to dip into a larger arranged overdraft, the average fee for an arranged overdraft of £500 over 30 days increases – from an average base of £8.96 to £10.29.
Savings for accidental overdrawn accounts:
The average fee for an unarranged overdraft of £50 over seven days across the banks reviewed is £26.87. However, under the new changes in place, this reduces to an average of 20p. Those who may dip into a slightly larger unarranged overdraft also experience a reduction – dipping £500 across 30 days reduces from an average of £54.91 to £8.06.
How can I deal with my finances in light of these changes?
Fear not! We’ve already got you covered – we’ve written a whole blog post on managing your overdraft effectively. Check out the post here to get your finances in line.