Bank overdraft rate 39.9%

[Bobdogs]

It seems to have got lost amongst everything that is going on at this time and is bound to affect more and more people in the coming months.
Should the government be addressing this?

 

[ainsworth74]

Any chance of a bit more context? Maybe a news article or something?

 

[DarloRich]

My bank overdraft rate is not 39.9%.

BTW - I have found a more than 3 month old Guardian article about HSBC jacking up charges.

 

[Dai Corner]

https://www.moneysavingexpert.com/news/2020/01/rbs-and-natwest-announce-overdraft-fee-hike-/

NatWest and RBS have become the latest banks to announce a steep hike in the interest charged on overdrafts, with some customers set to pay 39.49% from late March or early April. But the banks are also scrapping daily and monthly fees currently charged for overdrafts, meaning many will end up paying less overall to use them.

Nationwide, HSBC, First Direct and M&S Bank, which all hiked their overdraft interest rates to 39.9%.

 

[RichT54]

I'm with Lloyds. I was notified via online banking at the end of January:

From 6 April 2020, we’re making changes to the way we charge for using your arranged
overdraft. This is because new regulations mean all banks will charge a single interest rate for
arranged overdrafts to make it easier to compare the costs. The interest rate for your arranged
overdraft is based on how you manage your account and on the credit information we hold about
you – it will be 39.9% EAR / 0.093% daily variable.

 

[C J Snarzell]

I don't know the exact whys and wherefores but Martin Lewis was on the TV in February stating the changes to overdraft charges will mean people will end up paying more for using their overdraft than paying interest on a credit card.

CJ

 

[Bletchleyite]

I do wonder when we're going to have the sense to start charging for current accounts, say £10/month, rather than loading it onto the least able to afford it in this way.

 

[westv]

I think it's a case of those who sorted out an arranged overdraft being penalised because those who didn't were deemed to be being charged far too much.

 

[ComUtoR]

I do wonder when we're going to have the sense to start charging for current accounts, say £10/month, rather than loading it onto the least able to afford it in this way.

If you want to pay for your current account, there are many options available.

Lloyds
Club Lloyds - *£3
Platinum - £21

*waived if over £1,500 deposit per month

Satander
123 Account - £5
123 Lite - £1
Choice Account £10
Select - £5
Essentials - £1


Both will be charging 39.9% Overdraft interest from April.

 

[najaB]

I do wonder when we're going to have the sense to start charging for current accounts, say £10/month, rather than loading it onto the least able to afford it in this way.

There are plenty of paid accounts available for you to choose from. I'm quite happy with my fee-free one, thank you very much!

After all, nobody has to have or use an arranged overdraft but it's nigh-on impossible to function without a bank account these days.

 

[Bletchleyite]

There are plenty of paid accounts available for you to choose from. I'm quite happy with my fee-free one, thank you very much!

I'm sure you are, but it's penalty rates on overdrafts for less well-off people that are paying for it. I'm starting to have a moral issue with that - it can be expensive being poor, and it shouldn't be.

 

[C J Snarzell]

Without going off topic - any members got ideas of which bank/building society offer the best standard account at the moment?

CJ

 

[najaB]

I'm sure you are, but it's penalty rates on overdrafts for less well-off people that are paying for it. I'm starting to have a moral issue with that - it can be expensive being poor, and it shouldn't be.

Again, nobody has to have a planned (or unplanned) overdraft.

A few years back circumstances forced me to move to a basic free bank account with no overdraft facility. There were months where I would have had to choose between paying the £10 for the bank account or eating.

 

[Dai Corner]

Again, nobody has to have a planned (or unplanned) overdraft.

A few years back circumstances forced me to move to a basic free bank account with no overdraft facility. There were months where I would have had to choose between paying the £10 for the bank account or eating.

I'd say there will be a considerable number having to have an overdraft in the next few weeks while the measures the Government has announced materialise as money in people's' accounts.

 

[ComUtoR]

It's not specifically about being 'poor'. Plenty of people live in debt and on credit and they often see it as a way of life. I haven't had an overdraft for years and neither do I have a credit card or store card. Other people think I'm odd because of that. I have had some strange interactions with Bank Tellers over the years because they too find it strange that I don't have an overdraft.

Getting out was hard and staying out has been difficult at times. I've dipped my toe back in recently with a couple of lavish purchases. Personally I'm glad that credit exists because it does allow people to buy something they otherwise couldn't afford. Sadly that does come with an additional financial burden and potentially a large interest rate. Overdrafts are a necessary evil. They allow a small buffer for people who can't quite cover their bills or have a sudden emergency they have to pay for.

I'm not sure I would like a system where banking becomes like the welfare state where those who have to use the banking system are then penalized so that other people can get into debt or take out loans etc. It then becomes a system where only the rich would benefit as you would need to earn more in interest per month than what you are being charged or you are effectively paying to bank your money. A £10 per month bank account would cost you £120 per year. Which of course, would be additional to what your paying in overdraft fees; penalizing 'poorer' people further.

 

[Peter Mugridge]

It seems to have got lost amongst everything that is going on at this time and is bound to affect more and more people in the coming months.
Should the government be addressing this?

The Financial Conduct Authority reviewed bank charges because of complaints about unauthorised overdrafts costing more. After their review, the FCA agreed it was unfair and ordered the banks to charge the same rate for both authorised and unauthorised overdrafts. Naturally, as the FCA did not specify if the charging equality was to be at the lower or the higher end of the scale, the banks predictably all went towards the higher end of the range.

 

[Tetchytyke]

but it's penalty rates on overdrafts for less well-off people that are paying for it

That's why the FCA brought in rules that authorised and unauthorised overdrafts should be charged the same. And fee-charging bank accounts aren't necessarily the answer; my NatWest fee-charging current account currently has a six quid usage fee, plus daily charges and interest- for my arranged overdraft. I went into it by a tenner by mistake and the fees were pretty much a tenner, again, for an authorised overdraft. So the month's interest rate for that £10 was 100%; as an APR, that is a staggering 409,500% APR.

The FCA wanted clear pricing to promote an informed market. Not just to compare overdrafts, but to compare different types of short-term credit. Suddenly borrowing a tenner off a credit card at 30% APR doesn't sound so bad, does it?

That's why things have changed. And as all banks are pretty much charging the same rate, the exact opposite of what normally happens in a competitive market, the FCA have asked for details of how they have calculated this rate.

Finally, threats of bank poverty are grossly overstated, as most banks will currently chuck up to £200 at anyone opening a new account.