High street banks to make big change to overdrafts for millions of customers from TODAY – see how much more you’ll pay
THREE high street banks are making a big change to overdrafts for millions of customers from today.
Lloyds Banking Group, which owns Lloyds Bank, Halifax and the Bank of Scotland, is changing the way it charges for arranged overdrafts.
An overdraft lets you spend money or withdraw cash if your balance drops below £0, but you can be charged interest on anything you spend over this limit.
The rates change based on the type of account you have as well as an “affordability assessment” which takes into consideration your credit history.
The group said 39.9% – the rate most Lloyds, Halifax and Bank of Scotland customers are on – will remain its standard rate.
The 27.5% rate, which most people with Club Lloyds accounts were on, will be ditched completely.
The existing rate of 49.9% – the highest out of all the main high street banks – will still exist.
However, from today two lower tiers of 19.9% and 29.9% have been introduced, which means some will pay more interest.
The group has also introduced “temporary rates” of 34.9% and 44.9% for customers who will see their rates go up to 39.9% and 49.9% respectively.
The banking group said these rates, which last for six months before the new rate kicks in, aim to “limit the impact” of the increase.
While some customers will see their rates go up starting from today, others will have seen it go down earlier this year – with the change coming about in mid-May.
Lloyds hasn’t confirmed how many customers have seen their overdraft rates going up.
The changes don’t affect customers who don’t have an overdraft set up.
However, if you decide to set one up in the future, the rate will be one of the following – 19.9%, 29.9%, 39.9% or 49.9%.
There are some options to try to reduce costs on your overdraft rates such as switching to an account offering an interest-free overdraft.
One option could be First Direct, which offers many customers a £250 overdraft with 0% interest – and a rate of 39.9% above £250.
Nationwide offers customers who open a new FlexDirect account a 0% overdraft of up to £1,500 for the first year, which goes up to 39.9% after that.
You could also consider a 0% money transfer credit card, which pays money into your account so that you can then pay off your overdraft.
But keep in mind there’s a fee, usually of 4%, attached when you transfer your credit card balance.
If the rate is going up and making it unaffordable for you, you can talk to your bank to see how they can help.
If this doesn’t work, you can raise a complaint which could then be escalated to the Financial Ombudsman.
How do I switch bank accounts?
SWITCHING bank accounts is a simple process and can usually be done through the Current Account Switch Service (CASS).
Dozens of high street banks and building societies are signed up – there’s a full list on CASS’ website.
Under the switching service, swapping banks should take seven working days.
You don’t have to remember to move direct debits across when moving, as this is done for you.
All you have to do is apply for the new account you want, and the new bank will tell your existing one you’re moving.
There are a few things you can do before switching though, including choosing your switch date and transferring any old bank statements to your new account.
You should get in touch with your existing bank for any old statements.
When switching current accounts, consider what other perks might come with joining a specific bank or building society.
Some banks offer 0% overdrafts up to a certain limit, and others might offer better rates on savings accounts.
And some banks offer free travel or mobile phone insurance with their current accounts – but these accounts might come with a monthly fee.
How to shift debt
If you’re stuck in an overdraft and have any savings, it makes financial sense to use them to pay it off.
If you don’t have a pot of cash, speak to your bank.
Lenders must help if you’re in financial difficulty.
Consumer champion Martyn James says: “Though they don’t advertise it, it’s possible that your bank could turn your overdraft into an interest-free loan and remove it from your account completely.
“You could then pay back the money at a rate you can afford.”
You could also move your overdraft debt to a money transfer credit card, which may have a lower interest rate or a lengthy interest-free period.
These credit cards allow you to move more expensive debts you already owe on to a new card, and you won’t pay interest on this amount for a set period.
For example, Virgin Money’s All Round Card offers no interest for 12 months and a four per cent one-off money transfer fee.
After the 12 months is up, customers are charged 29.9 per cent APR on any remaining balance owed.
Before applying, use an eligibility checker by a comparison site such as Compare the Market or MoneySupermarket to find out how likely you are to be accepted without damaging your credit score.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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