CURRENT ACCOUNT OVERDRAFT HIKES – COMPARETHEMARKET.COM WARNS OF INCOMING CHANGES TO OVERDRAFT INTEREST RATES
- Freezes on overdraft interest payments implemented as a result of COVID-19 are beginning to wind down and some customers may be unaware of the upcoming changes
- 46% of high street banks have already upped their overdraft interest rates to pre-lockdown levels
- Earlier this year, comparethemarket.com warned that a majority (66%) of current account holders were unaware of FCA changes to overdraft fees
- 40% of current account holders have used their overdraft in the last year
- More than two-fifths of individuals (42%) do not know what their providers current overdraft fees are
17 August 2020 – Freezes on overdraft interest payments, implemented by the regulator as a result of COVID-19, are coming to an end and customers unaware of the changes could be hit with a higher interest rate on their overdraft. New research from comparethemarket.com finds that nearly two-thirds (62%) of the major UK high street banks have already upped their standard overdraft fee from pre-lockdown levels and, from August 29, this will jump to 85%.*
Before the pandemic, the FCA introduced new rules that banks must charge an annual interest for overdrafts, without additional fees and charges. In response to the regulatory changes, a number of high street banks announced a flat interest rate of around 39% on all overdrafts – significantly higher than their previous interest rates.
The FCA paused the initiative during lockdown and all providers offered an interest free overdraft up to £500. However, recent changes to the guidance mean that where banks offered an interest free amount to all arranged overdraft customers, banks can now choose to move it only to eligible customers who request it. This means some borrowers could be unaware that their overdraft fee has, or will, suddenly increase again.
comparethemarket.com is urging borrowers to check whether this has affected them and to reduce their overdraft balance to avoid the higher interest fee, even if it’s only possible to make a minimal payment amount. However, if you are struggling financially and are unable to do this, comparethemarket.com is urging borrowers to get in touch with their lender to ask for a further overdraft holiday extension if needed.
comparethemarket.com research earlier this year revealed the extent to which much of the British public is reliant on an overdraft. A survey of over 2,100 UK adults found that 40% have gone overdrawn in the last 12 months. Despite these incoming changes, consumer awareness remains low; two-fifths of individuals (42%) do not know how much their providers charge in overdraft fees, despite being an average of £377 overdrawn. Additionally, over one quarter (28%) felt that their bank did not clearly explain their overdraft charges to them.
John Crossley, Head of Money at comparethemarket.com, comments:
“There is no doubt that current account providers offered many households a lifeline by providing interest free overdrafts during the height of the pandemic. However, overdraft interest rates have slowly but surely been creeping back up as lockdown continues to ease and the economy struggles to get going again.
“Many households will still be under financial strain and in need of funds to help tide them over. Indeed, our Financial Confidence Tracker shows that nearly a fifth of people struggled to pay their bills over the last week. 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 credit card as it can be a cheaper form of debt, although be aware that providers have tightened eligibility criteria recently. If you are 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.”
Notes to editors:
Populus survey on behalf of comparethemarket.com of 2,102 UK adults 3-6th January 2020
*Overdraft rates being introduced by lenders for standard current accounts.
Of the below lenders outlined, 8 providers have already increased rates: Nationwide, Barclays, Santander, Lloyds, Halifax, RBS, Co-op and Natwest. From August 29th, HSBC, First Direct and M&S Bank will be included – bringing the total to 11 out of 13 lenders.
|Bank account||New rate||Is the new rate already introduced?||Help if struggling due to coronavirus?|
|Nationwide FlexAccount||39.9%||Yes||Need to apply online manually until latest 31 Oct to have entire overdraft interest-free until 31 Oct|
|HSBC Advance||39.9%||No – 29th August||Automatic £500 0% overdraft granted until 29 Aug. Then must apply online manually until 31 Oct latest for first £500 interest free for 3 months|
|First Direct||39.9%||No – 29th August||Automatic £500 0% overdraft granted until 29 Aug. Then must apply online manually until 31 Oct latest for first £500 interest free for 3 months|
|Barclays||35%||Yes||Automatic £500 0% overdraft granted until 10 Aug. Awaiting updates post 10th August|
|Santander||39.4%||Yes||Need to apply online manually until latest 31 Oct for first £500 interest free|
|RBS||39.49%||Yes||Interest rates capped at 19.89% until 7 August. Then must apply online manually to have first £500 interest free until 31 Oct latest|
|Co-op||35.9%||Yes||Need to apply online manually until latest 31 Oct for first £500 interest free for an extra 2 months or 3 months if you haven’t automatically had an interest waiver.|
|Lloyds Bank||27.5% or 49.9% (dependent on current account and credit information)||Yes||Need to apply online manually until latest 31 Oct for first £500 interest free for 3 months|
|Halifax||39.9%||Yes||Need to apply online manually until latest 31 Oct for first £500 interest free for 3 months|
|Natwest Select||39.49%||Yes||Interest rates capped at 19.89% until 7th Aug. Then must apply online manually to have first £500 interest free until 31 Oct latest|
|Metro Bank||34%||No – 10th October||0% interest until 9 October|
|M&S Bank||39.9% above £250||No – 29th August||Automatic £500 0% overdraft granted until 29 Aug. Then must apply online manually until 31 Oct latest for first £500 interest free for 3 months|
|Monzo||19%/29%/39% (dependent on credit score)||TBC||Must apply online manually to have first £500 interest free until 31 Oct latest|
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