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Coronavirus and current accounts

Find out how COVID-19 is impacting current accounts, payments, overdrafts and everyday banking.

Find out how COVID-19 is impacting current accounts, payments, overdrafts and everyday banking.

Anelda Knoesen
From the Money team
6
minute read
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Posted 12 AUGUST 2020

Coronavirus and current accounts

COVID-19 is affecting the way we make payments and do our banking – as well as our finances – in a variety of ways.

How has the coronavirus affected overdrafts?

The Financial Conduct Authority (FCA) introduced new measures in April to help people. These measures allowed customers experiencing a change in financial circumstances because of coronavirus to request up to £500 interest-free on an arranged overdraft, for three months. The banks were given the option of applying this rule to all their customers or just those who requested an arranged overdraft.

If you haven’t already used the option of this £500 overdraft, this is still available to you and you shouldn’t be charged any interest on the first £500 of the overdraft until 31 October. Your credit rating isn’t affected if you choose to request the £500 interest-free overdraft facility. But the FCA warns that people should think carefully before entering into one of these arrangements, as they may lead to higher costs in the long term. Their advice is that you should only do so if you need immediate, temporary financial help.

If you’ve already had three months’ support, you can ask for a further three months’ help, which starts from the time you request it or the end of the initial period of support, whichever is later. Some banks are automatically extending the overdraft, but with others you have to re-apply, so check with your bank what you need to do.

If your bank didn’t automatically offer overdrafts, it should get in touch with you to warn that your overdraft option is coming to an end, letting you know what your options are if you still need support. If your fee-free overdraft is with a bank that automatically offered them, it must publish this information where customers can easily find it. So you may need to check your bank’s website and then arrange to extend your overdraft.

If your overdraft is more than £500 you’ll have to pay interest charges above that, even on a coronavirus help-agreed overdraft. Rates can be pretty hefty.

A new set of overdraft rules announced before the crisis also came into force from 6 April. Banks and other financial service providers can only charge a single annual interest rate for arranged and unarranged overdrafts, with no additional daily charges.

As the end of the first interest-free period came to a close, many banks that didn’t apply the option of an interest-free overdraft to all their customers have now brought in the new level of charges for people not requesting the FCA-sanctioned free overdraft. If you now find that you need an overdraft, it’s best to request one from your bank under the Overdrafts and Coronavirus FCA rules - otherwise you could find yourself paying around 39% interest on your overdraft.

John Crossley, Head of Money at Compare the Market, said: “If you wish to extend the payment exemption on your overdraft, make sure you get in touch with your provider.

“When overdrafts return to the 39% level, it becomes an expensive way to borrow. Responsible borrowers could consider applying for a credit card as it can be a cheaper form of debt, although be aware that providers have tightened eligibility criteria recently. If you’re unhappy with the overdraft fees your bank is charging, it is worth finding a more competitive provider or considering a cheaper alternative if you need to take out credit.”

See more on coronavirus and credit cards
See more on coronavirus and loans

What can I do if I’m struggling to repay my overdraft?

If you’re still struggling to repay your overdraft as a result of coronavirus, see guidance from the Money Advice Service.

Coronavirus and contactless payments

The coronavirus outbreak has fast-tracked the payment industry’s decision to increase the contactless payment limit to £45. Retailers have been able to accept the larger payments since 1 April.

If you’re looking to make a contact-free payment of more than £45, mobile payment services including Apple Pay, Samsung Pay and Google Pay may be accepted. Limits on these services depend on the retailer.

Contactless transactions allow payments for goods and services to be made while reducing the chances of spreading bacteria. Retailers benefit from not having to handle cash, while consumers avoid the use of pin pads.

Card payments above £45 will continue to be made using Chip and PIN and customers may be asked to type in their four-digit code from time to time, even if the amount is under £45.

How to avoid coronavirus scams

Since the outbreak of coronavirus, opportunists have targeted members of the public with promises of cures and fraudulent face mask sales. Phishing emails have also cheated unsuspecting people out of their cash and personal data.

To remain vigilant and ensure you’re not caught out by the fraudsters, read tips on How to avoid coronavirus scams.

Can I visit the bank?

Yes, but you should follow all rules for social distancing and wear a face covering where necessary. Check the local rules for England, Scotland, Wales and Northern Ireland.

Am I still able to switch bank accounts?

Yes. At the start of the pandemic, some banks withdrew their current accounts to new customers as they struggled with staff shortages and a greater volume of coronavirus-related queries. But most are now back to business as normal.

If you’re looking to switch accounts, check that your new bank is accepting applications.

What about my savings accounts?

You may have savings set aside that you didn’t imagine you’d need to access for a long time. Several banks are now waiving fees for early withdrawals or closures of fixed rate savings accounts.

Find out more about savings and coronavirus

For now, Lifetime ISA rules remain unchanged, meaning you’ll be charged a 25% penalty when you withdraw money for any reason other than to purchase your first home or retire. The only exception to the rule applies if you’re terminally ill.

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