Unplanned overdraft fees – they’ve been the bane of plenty of people’s lives.
We’re a little short on cash, so we dip into the unplanned overdraft, and before you know it, we’re being charged more money for money we didn’t have in the first place.
Now, from November, Lloyds Banking Group will scrap fees for those who go over their overdraft limit overdrafts. They now join Barclays, who in 2014 banned unauthorised overdrafts, thereby preventing customers from being charged.
The decision from Lloyds follows a report by the Competition and Markets Authority (CMA) which claimed that overdraft charges were far too high. And they’re not the only ones concerned about this: Consumer groups have also been highly critical of the fees, while the Financial Conduct Authority (FCA) is reported to be looking into the issue, proposing tougher measures in a forthcoming inquiry into high-cost credit.
So, if you’re a Lloyds Banking Group customer – which comprises Lloyds, Halifax and the Bank of Scotland – what does it mean for you?
Well, let’s say you dipped into an unplanned overdraft. Right now, you’re expected to pay annual interest rates of 19.89%, a £10 daily charge, a monthly charge of £6 and a whopping £30 per day for any unpaid items.
This won’t just affect your purchases, either. If you’ve set payments to go out of a basic bank account, but don’t have the money to cover it, you’ll also find yourself charged.
From November, you won’t have to pay any of these charges
Indeed, in an effort to encourage customers to embrace consumer credit, Lloyds will even simplify their planned overdraft charges in order to make them cheaper. Authorised lending, at present, will cost you £6 a month, with an annual interest repayment rate of 19.89%, but Lloyds are seeking to abolish both those figures.
It may not be time to celebrate just yet
We might be saying farewell to those monthly £6 fees. But there’s no such thing as a free financial lunch, and interest rates will escalate to 68.4%.
The bank points out that while the interest will skyrocket, this rate still equals about 1p for every £7 you’re overdrawn. Or, to put it another way, they believe the changes will leave nine out of ten customers better off or they’ll see no change in circumstance.
The move to scrap these unplanned overdraft fees was greeted with cautious optimism from consumer groups. Peter Vicary-Smith, chief executive at Which? Said that the FCA needs to work with other banks to remove unfair charges but…
‘Lloyds’ decision to do away with these fees is a positive step, and its proposed simpler pricing will benefit many of its customers. However, not everyone will be better off, so it’s critical that Lloyds supports customers to help them avoid high charges and to reduce their level of debt.’
Furthermore, the removal of fees doesn’t mean that we can’t expect to be charged for going over our account limit. It’s just that we’ll be paying in a slightly different way.
The CMA’s report rules that a maximum monthly fee should be introduced by September this year. And there’s no hard and fast rule here; the banks can decide that maximum for themselves.
For Lloyds customers, the charge for unplanned overdrafts will be £95. It’ll cost you £80 from the end of July, if you’re with NatWest and RBS, while HSBC intends to scrap all interest fees on unauthorised borrowing, but will retain a daily charge of £5, up to a maximum of £80.
The end of the charges, then, may be good news for customers with Lloyds, but even this change doesn’t make them the most competitive bank if you’re looking to make your money work harder for you.