You will no longer be charged daily and monthly overdraft fees - here’s why
Bank overdraft fees in the UK are changing in what has been described as the biggest overhaul of the banking system in a generation.
You will no longer be charged daily or monthly fees for going into your overdraft. Banks and Building Societies will also not be allowed to charge higher for unplanned overdrafts than planned ones.
When do the new rules come into play?
The new rules will come into force by April 2020, according to the Financial Conduct Authority (FCA).
The new measures, which were first proposed in December, mean that banks will have to charge a simple annual interest rate on all overdrafts. The advertisements for the overdrafts will also have to state these rates clearly so that they can be easily compared.
The FCA said the changes would make overdrafts "simpler, fairer, and easier to manage".
What are the new rules?
The new rules will mean:
An end to monthly or daily feesNo difference between arranged and unarranged overdraft prices - but no cap on the cost eitherA requirement for banks to advertise their overdraft rate as a single annual interest rate, or APRBanks will still be able to refuse to make a payment if a customer does not have the funds to cover it, but any fee for the customer must reflect the cost to the bankBanks must make more effort to help customers who are showing signs of financial strain.
In 2017, banks made more than £2.4 billion from overdrafts. Nearly a third of this came from unarranged overdraft fees. But the new rules would reduce this amount dramatically.
According to the FCA, at the moment, the average cost of borrowing £100 through an unarranged overdraft is £5. The new rules would see this drop to around 20p.
Andrew Bailey, Chief Executive of the Financial Conduct Authority said, “The overdraft market is dysfunctional, causing significant consumer harm.
“Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often ten times as high as fees for payday loans.
“Our radical package of remedies will make overdrafts fairer, simpler and easier to manage.
“The decisive action we are taking today will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”