At a time when the word “coronavirus” is dominating the headlines and fast becoming a daily topic of conversation we should be wary of other significant developments which could easily pass unnoticed if we are not careful not least in relation to our financial lives.
New rules for overdraft charging demanded by the FCA, the City regulator, take effect on 6 April 2020. Although the rules are effective from next month some providers have already introduced or announced updated fees.
A report by the Financial information service Moneyfacts has investigated 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.
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 the regulator’s deadline.
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.
Meanwhile, others, who would breach their overdraft limit or go overdrawn without permission, could see savings as some of the fees of the old regime are effectively being banned.
In one example, a provider’s fees for an unarranged £500 overdraft for 30 days will drop from £100 to less than £10.
Several 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.
Announcements already made by some of the banks are provided below:
- 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.
It remains unclear how the market will react to these changes. Moneyfacts commented “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,”
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.
Julian Kaye Dip PFS