Lloyds Banking Group and TSB are the latest banks to announce changes to their overdraft fees, which will see some borrowers being charged 49.9% for going into their overdraft.
Lloyds Banking Group, which includes high street brands Lloyds, Bank of Scotland and Halifax, has changed its overdraft fees so that from the 6 April 2020, customers will be charged a flat rate of 39.9% or 49.9% EAR on all overdraft borrowing, while Club Lloyds customers will be charged either 27.5% or 49.9%. The rate customers are charged depends on existing information the bank holds about the customer’s credit history and how they operate their account.
The bank has also revealed that it is dropping the interest-free tier on some accounts to just £50, however it has not stated which accounts will be impacted.
Lloyds Banking Group has stated that the majority of its customers will be charged the lower rate, with many paying less on the new overdraft fee charges than its current charges, however it means that for many consumers it will be cheaper to borrow on a credit card instead.
TSB has also announced that it will be changing its overdraft charges to 39.9% EAR from the 2 April 2020. The bank will also remove its monthly flat fees, which are currently £6 per month on arranged overdrafts, plus up to £10 per day on an unarranged overdraft, along with interest at 19.84% EAR. In addition to changing its overdraft charges, it has also removed the £35 fee-free buffer.
Lloyds Banking Group and TSB are just the most recent banks to announce changes to its overdraft fees. Banks are making these changes in response to the Financial Conduct Authority’s (FCA) banning of fixed fees on overdrafts. In addition to this, the FCA has also ruled that unarranged overdrafts rates cannot be higher than arranged overdraft fees.
Commenting on the Lloyds Banking Group and TSB overdraft changes, Rachel Springall, finance expert at Moneyfacts.co.uk, said: “It will be disappointing news for borrowers to find that they could be charged almost 50% interest when they dip into the red. There are much more competitive overdraft tariffs available elsewhere, such as with Starling Bank or Metro Bank which charge 15.0% EAR.
“The fixed fee overdraft ban should be celebrated, however as we have seen from Santander, not only can customers be charged a high interest rate when using their overdraft, they may also see any perks cut.
“Over the next few months it will be interesting to see whether consumers decide to switch away from the biggest bank brands in favour of alternatives where their account could work harder for them.”
For more information about bank accounts with overdrafts take a look at our guide on How does a current account overdraft work?.
You can also view all the bank accounts with overdrafts currently available by visiting our accounts with overdrafts chart.
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.
