51% rate of Lloyds’ new daily fee on overdrafts

D.S. writes: There does not seem to have been much reaction to the decision by Lloyds Bank to introduce a ‘new daily overdraft fee’ of 1p per day for every £7 of overdraft. I phoned the bank and asked if I was correct in calculating this to be a 51 per cent annual percentage rate. The lady who answered did not disagree, but she insisted there was no such rate because the fee is charged daily. THE new system came into force two months ago but was announced last July. Your arithmetic is absolutely right, assuming that a customer has an unchanged overdraft that lasts a year. Anyone in this position would be well advised to borrow elsewhere. Even a credit card is likely to be cheaper. Of course, most people who have an overdraft see it fluctuate, and Lloyds told me: ‘More than nine in ten will either be better off or unaffected financially by the changes.’

For example, the bank says its typical overdraft is around £450. Before the change, a ‘classic’ current account customer who went overdrawn for a week to the tune of £450 would be charged £7.49, but under the new scheme they will pay £4.48. The one in ten who could be worse off should get out their calculators and start shopping around.