Derin Clark

Derin Clark

Online Reporter
Published: 05/12/2019

HSBC has announced it is making changes to its overdrafts fees that will see all borrowers being charged an interest rate of 39.9% for using both an arranged and unarranged overdraft, which is due to come into effect in March 2020.

The new single overdraft interest rate will be introduced so that HSBC can simplify its overdraft fee structure, which is likely in response to the Financial Conduct Authority’s (FCA) criticism that banks have made overdraft fees too complicated. Other changes HSBC will be introducing in March 2020 include the removal of the £5 daily fee for going into an unarranged overdraft, reducing the maximum monthly charge from £80 a month to £20 a month, and an introduction of an interest-free £25 buffer on Bank Account and Advance accounts.

This announcement could be part of a wider trend of well-known banks declaring planned changes to their overdraft fees, as the FCA has stated that charging fixed overdraft fees needs to end by 6 April 2020 and there are still some banks with fixed charges. Santander, for example, could make an announcement soon as it currently charges arranged customers at least £1 per day if they are overdrawn by more than £12 on its 123 Current Account. 

What does this mean for consumers?

The FCA wants to make overdraft fees easier for consumers to understand, which should make it easier for consumers to find the best overdraft account for their circumstances. Saying this, those who are regularly in their overdraft by hundreds of pounds could find the interest rate having a substantial impact on their finances and as such, should look to pay off their overdraft as quickly as possible. In addition to this, consumers can look around at other accounts that may charge lower interest fees for using an overdraft. For example, Starling Bank charges 15.0% AER for arranged and unarranged overdrafts.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “It’s disappointing to see such a hike to those using an arranged overdraft but there may be more brands coming out in the coming weeks to announce changes too. It’s good to see daily fees stripped away as they typically do cost more to the everyday consumer than an interest charge.

“We have already seen Nationwide upping its charges, and these moves have been in response to the FCA’s ruling to ban fixed fees from April 2020. Providers who charge these will have to change their structure, and that can mean charging a much higher interest rate than their peers. This shake-up is designed to make things fairer and more transparent to consumers.

“Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine. It only takes seven days to switch using the current account switcher service.

“There are a handful of current accounts out there that offer a fair overdraft tariff, such as with first direct and Starling Bank.”

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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