Over­drafts get­ting an over­haul

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Al­ways slip­ping into the red? Here’s what you can do about it.

Over­draft charges have caused many a headache for cur­rent ac­count cus­tomers, whether it’s through bust­ing your over­draft limit with­out realising it, or be­ing hit with a big monthly bill. It can be all to easy to reg­u­larly dip in and out of an over­draft with­out fully con­sid­er­ing the over­all cost – and whether bor­row­ing could be cheaper else­where. But now, the UK’s big­gest cur­rent ac­count provider will shake up the way over­drafts are charged. Here’s what’s hap­pen­ing:

MIL­LIONS MOVED TO ‘PAY-ASYOU-GO’ OVER­DRAFT SYS­TEM

Lloyds Bank­ing Group, which has more than 20m per­sonal cur­rent ac­count cus­tomers, will change its over­draft charges from Novem­ber.

It says more than nine in 10 of those with its brands Lloyds Bank, Bank of Scot­land and Hal­i­fax, will be left ei­ther bet­ter off or in the same po­si­tion fi­nan­cially. Lloyds will have a “pay-as-you-go” sys­tem to help peo­ple keep on top of their fi­nances. Cus­tomers will be charged a sin­gle rate of 1p per day for ev­ery £7 of planned over­draft us­age. The bank­ing group is also re­mov­ing some fees and charges – in­clud­ing for un­planned over­drafts. Lloyds says the moves will mean, over­all, it makes less money from over­drafts.

WHAT’S THE BACK­GROUND?

The Fi­nan­cial Con­duct Author­ity (FCA) has al­ready said it is putting high-cost credit, in­clud­ing over­drafts, un­der the spot­light. Con­sumer group Which? pre­vi­ously found some unar­ranged over­drafts po­ten­tially cost more than a pay­day loan. The Com­pe­ti­tion and Mar­kets Author­ity, has said that in 2014, £1.2bn of banks’ rev­enues came from unar­ranged over­drafts.

WHAT’S THE RE­AC­TION BEEN TO LLOYDS’ AN­NOUNCE­MENT?

Martin Lewis, founder of MoneySav­ingEx­pert.com, says: “Charges for breach­ing your over­draft lim­its have been a scourge for many years.” He says: “Peo­ple of­ten pooh-pooh credit cards, but if you’re over­drawn, debit cards are debt cards too.”

An­drew Hag­ger, founder of of MoneyComms.co.uk, says: “I’m sure Lloyds won’t be the last bank to re­view its over­draft tar­iff in the next few months.”

WHAT ABOUT MA­JOR CUR­RENT AC­COUNT PROVIDERS? Here’s what they say: Bar­clays: “Bar­clays does not pro­vide unar­ranged over­drafts or any other form of unar­ranged bor­row­ing. We have in­tro­duced text alerts, grace pe­ri­ods and buf­fer zones to help cus­tomers man­age their fi­nances and avoid fees.”

RBS/NatWest: “We want to make bank­ing sim­ple, fair and trans­par­ent, so in May we wrote to nearly 12m cus­tomers to let them know our max­i­mum fees for unar­ranged over­draft us­age are be­ing cut by al­most half, from £150 to £80.”

San­tander: “We be­lieve in a sim­ple and trans­par­ent ap­proach to over­draft charg­ing. We al­ready have a max­i­mum to­tal monthly over­draft fee cap that ap­plies to all ar­ranged and unar­ranged over­draft charges, in­clud­ing paid and un­paid trans­ac­tion fees.”

HSBC: “We are re­mov­ing in­ter­est charges on unar­ranged over­drafts on our most pop­u­lar ac­counts, in­clud­ing HSBC Bank Ac­count, HSBC Ad­vance, as well as our Grad­u­ate Ac­count and re­tain­ing the pol­icy of not charg­ing more for an unar­ranged over­draft than by the amount the cus­tomer is over­drawn, up to a max­i­mum of £80 a month.”

Na­tion­wide Build­ing So­ci­ety: “Na­tion­wide al­ready has some charges caps in place and has fur­ther plans to cap charges from Au­gust.”

IF YOU’RE AL­WAYS SLIP­PING INTO THE RED, HOW CAN YOU DIG YOUR­SELF OUT?

If you’re se­ri­ously strug­gling, con­sider get­ting free help from a debt char­ity, as well as talk­ing to your lender to stop the prob­lems get­ting worse.

Rachel Springall, a fi­nance ex­pert at Money­facts.co.uk, sug­gests those who dip in and out of their over­drafts should make the most of banks’ free text alerts when they’re about to go into the red, and if pos­si­ble, top up their cur­rent ac­count from any sav­ings. Look­ing for banks of­fer­ing over­draft buf­fers can be an­other way to avoid be­ing hit by charges. Springall high­lights a £250 over­draft buf­fer from First Di­rect. Zero in­ter­est credit cards can also give some breath­ing space when tack­ling debt, but Ms Springall cau­tions: “It’s vi­tal that card cus­tomers make a plan to tackle the bal­ance dur­ing the in­ter­est-free pe­riod and not have it hang­ing over their heads.”

Us­ing pre-paid cards can be an­other way for bor­row­ers to stick to their spend­ing lim­its.

Mean­while, Mr Lewis says: “Any­one who has had bank charges, which have con­trib­uted to them be­ing in fi­nan­cial hard­ship, may still be able to re­claim them and get hun­dreds back.

“There’s full help and free tem­plate let­ters at www. moneysav­ing ex­pert.com/re­claim/bank-charges.”

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