Santander is the latest bank to announce changes to its overdraft fees in response to the Financial Conduct Authority’s (FCA) banning of fixed fees on overdrafts.
Today the bank has announced that from 6 April 2020, all its on-sale adult accounts will charge a rate of 39.9% EAR, except its Choice Account, which will have a lower EAR of 29.9%. In addition to this, Santander will also remove all unarranged charges and paid item fees.
While the Choice Account will have a lower overdraft fee, with interest capped at £20 per month, it does have a monthly charge of £10, which means customers will pay a maximum of £30 per month.
With many banks making changes to their overdraft rates, these changes from Santander will put the bank’s overdraft fees in-line with many of its competitor’s rates.
Susan Allen, head of retail banking at Santander, said: “The new single interest rate, combined with the removal of all other overdraft charges from our personal current accounts, provides clear and simple overdraft pricing for our customers, with the vast majority of customers paying less and a daily fee of just 9p per £100 borrowed.
“But we know that helping people manage their day-to-day finances effectively goes beyond simplifying overdraft pricing. We have a range of support services in place – from our over-the-phone experts to our in-branch workshops – and would encourage any customers who would like help in understanding the impact of these changes, or any other aspect of managing their money to get in touch.”
In addition to changes to its overdrafts, Santander has also revealed that from 5 May 2020, it will be reducing the in-credit interest rate on it 1|2|3 Select and Private Current Account from 1.50% to 1.00% on balances up to £20,000. On this date, the bank will also be capping household bill cashback at £5 in each of the three cashback categories on its 1|2|3 Current Account, 1|2|3 Lite, Select and Private Current Accounts.
Santander has said that there will be no changes to the account fee, which will remain at £5 per month for 1|2|3 Current Account and £1 per month for 1|2|3 Lite Current Account. The range of household bills on which cashback can be earned will also remain the same.
Commenting on these changes, Rachel Springall, finance expert at Moneyfacts.co.uk, said: “It seemed inevitable that Santander would need to review the benefits it offers on its current account range in light of the FCA ban on flat overdraft fees. Moving away from charging £1 a day for arranged borrowings to a simple interest charge of 39.9% APR means a substantial saving for customers, but even more so for those who borrow on the unarranged facility. According to Santander, six out of seven overdraft customers will be paying less than they are currently on charges.
“Overdrafts have been a revenue stream for current account providers and, in 2017, the FCA reported that banks earned £2.4bn from overdrafts. The ban this year on flat fees should be celebrated as it will generally mean a decent saving for consumers who are the most vulnerable and fall into an unarranged facility. However, the changes have led to banks and building societies charging high interest rates on overdrafts, so it could be cheaper for consumers to use a credit card for short-term lending instead.
“Meanwhile, cutting the credit interest rate to 1% from May 2020 will result in some easy access savings accounts paying a better return, whether someone saves a small amount or up to the £20,000. As an example, Gatehouse Bank pays an expected profit rate of 1.40% and Cynergy Bank pays 1.36% gross interest. There are also higher interest rates available on alternative current accounts, but a max limit on the balance to earn interest and eligibility criteria usually applies here.
“Cutting the cashback will be disappointing news to customers, as this feature may well be the most lucrative benefit and will now be capped to £5 in each of the three cashback categories – whereas, at the moment, there is no cap. Therefore, customers will now get up to £15 cashback per month or £180 per year. Santander states that nine in 10 customers will be unaffected by the cap, so the cashback offer may still be enticing, especially as the range of household bills to earn cashback from isn’t changing and many big bank alternatives fail to offer any cashback at all.
“Thankfully, Santander has decided not to increase its account fees, which could have been an option from the loss of revenue in overdraft fees, so overall customers could still be attracted to the Santander package of benefits, despite the shakeup.”
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.