Money-saving expert Martin Lewis has issued an urgent warning about overdrafts for Bank of Scotland, Halifax and Lloyds banking customers as a new change might come in. Interest rates you’re charged for using your overdraft with these banks could go up to 49.9% as part of a fees shake up, the Money Saving Expert (MSE) said.
The Lloyds Banking Group, which owns all three brands, says most customers will be charged the same or less for their overdrafts after the changes – but others will pay more, and some Club Lloyds customers will see their rate nearly double, from 27.5% to 49.9%.
The overdraft rates were broken down by the MSE. Previously some Club Lloyds customers are/were on 27.5% overdraft, most Bank of Scotland, Halifax and Lloyds customers are/were on 39.9% but some of them are/were on 49.9% already.
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But now all Bank of Scotland, Halifax and Lloyds will be moved to one of these rates:
– 19.9%
– 29.9%
– 34.9% (temporary rate for six months only; after that it goes up to 39.9%)
– 39.9%
– 44.9% (temporary rate for six months only; after that it goes up to 49.9%)
– 49.9%
The rate will be determined by an “affordability assessment” based on your credit history and banking activity with these banks. Lloyds Banking Group has said the standard rate will remain at 39.9%, however, and said that the ‘vast majority’ of customers in an arranged overdraft will actually see their rate stay the same or fall. They did not say how many customers would see an increase, however, MSE said.
How will I know if my rate has gone up or down?
If your rate is going up you will be given 60 days’ notice and your rate will rise from August 2024. Customers who will see a rate increase will first be put on a 34.9% or 44.9% rate for six months to ‘limit the impact’ of the increase; after that, your rate will rise again to either 39.9% or 49.9%, MSE said.
If your rate is going down you will be given seven days’ notice with the lower rate coming into effect after that. Notification of this started to come into effect in mid-May.
These changes won’t affect you if you don’t have an overdraft set up on your account, though if you do decide to add one in future, it’ll be at one of the four new rates set out above (19.9%, 29.9%, 39.9% or 49.9%).
How can you cut overdraft costs?
You can check if you can switch to an account with an interest-free overdraft. You can do this by leaving the Bank of Scotland, Halifax or Lloyds and finding a bank with a 0% interest overdraft. First Direct offers a £250 0% overdraft (but charges 39.9% above this) as well as a £175 free cash bonus for the switch.
Nationwide also offers a 0% overdraft up to £1,500 in its FlexDirect accounts for new customers. This lasts for the first year of your account and then is 39.9% after. You can use an eligibility checker on their websites first to make sure you can get these offers.
You can also try a 0% ‘money transfer’ credit card. With these cards you can pay cash into your bank account for a one-off fee of about 4% of the amount you’re transferring. If you use this credit card to clear your overdraft and effectively switch the debt over to it you now owe the card at 0% interest instead of your bank at up to 49.9% interest. You can currently get up to 12 months at 0%.
You can talk to your bank if you’re struggling and complain if necessary. Bank regulator Financial Conduct Authority has said it will take ‘positive steps’ for those financially struggling as a result of overdraft charges. It could include waiving or reducing your overdraft interest or letting you repay it as a loan on lower interest.
MSE described how you could raise a complaint. They said: “In the first instance, contact Bank of Scotland, Halifax or Lloyds directly to see how they can help. If that doesn’t work, raise a formal complaint – explain that you’re being trapped in debt at a higher interest rate without being given alternatives to get out of it, and that this could be a breach of the regulator’s Consumer Duty rules (these require banks to treat customers fairly and deliver good outcomes). If your bank can’t or won’t help, you can then escalate your complaint to the free Financial Ombudsman.”
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