DON’T GET DRAWN INTO HIGHER FEES
If you bank with Lloyds, Bank of Scotland or Halifax, you’re one of more than 20 million in the UK who have had their overdraft charges changed. For some, it can mean paying hundreds more a year. Yet the market’s never been more competitive, with three banks offering 0% options.
The changes to the Lloyds Banking group charges hit a few weeks ago and many are shocked by the cost.
This has been a root-andbranch (sorry!) reform. Before, some Lloyds brands charged a flat daily fee; others a monthly charge and daily interest. now it’ll charge 1p per day for each £7 you’re overdrawn, which works out around £1 a day per £700 of overdraft (so £30 a month if you’re that far into it continually). it’s also got rid of charges for busting your limit.
There are more winners than losers, but the gains are smaller than the losses for those who do lose out.
Top 0% overdrafts
Paying too much? Ditch and switch. When you apply to a new bank you will be credit scored – it’s often not harsh, but you can be rejected or given a low overdraft. See my guide at mse.me/cutoverdrafts but here are the top deals: ✱ First Direct switchers get £100 free and may qualify for an ongoing £250 0% overdraft (15.9% ear above that). if you are less than £350 overdrawn, after the free cash you’ll only owe up to £250 at no cost. ✱ HSBC advance offers a free £150 (plus £50 after a year) and a six-month 0% overdraft (only do this if you can clear in that time!), typically £1,000. ✱ nationwide Flexdirect gives switchers a 0% overdraft for a year (50p a day after); limits here can be high, too. it’s also possible to use special money transfer credit cards to shift larger overdrafts to credit cards at 0% – a powerful way to cut costs. See moneysaving expert.com/moneytransfers.
can’t get a deal?
if you’re struggling, the Financial conduct authority says banks must ensure its customers are treated fairly. So speak to your bank and ask it to waive or reduce fees – especially if you’re in hardship. if that fails, take them to financial-ombudsman.org.uk for free. i’m not yet sure how it will respond to the Lloyds changes, but it’s worth a try.
5 ways to reduce it
The rate isn’t everything – it’s also important to manage your overdraft correctly. ✱ Shift your direct debits to minimise fees. ask companies you pay to shift your direct debits to just before you’re paid. So, if you’re paid on the 25th, aim for the 20th. This will reduce the length of time you’re in your overdraft for. ✱ Do a proper budget. Look at your bank statements for the year – it must be the full year to account for big spends like birthdays, car insurance and holidays – and add up what comes in and goes out. Then look at where you can cut back. use my free tool at mse.me/budgetplannertool. ✱ Beware of busting your limit – charges for this can be hideously expensive. even payday loans can be cheaper than huge fees charged for going a penny over. ✱ Shift to a no-overdraft account. Basic bank accounts offer a no-frills, no-overdraft current account service. They used to charge fees if you spent more than you had, eg, for unpaid direct debits, but since January last year those have stopped. if you spend when you’ve no money, it will be rejected with no charge. options include Barclays Basic current account and The co-operative cashminder. ✱ if you’re struggling to get out of the bank charge circle, ask your bank to refund the charges. While it’s harder now, it can still be done. But you need to be in genuine hardship to claim. Full help and free template letters are at mse.me/reclaimbank. even if you aren’t in hardship, but you go overdrawn for the first time, it’s still worth asking if they’ll refund the charges as a one-off goodwill gesture. They may just do it.