What are the new rules for overdraft fees in the UK?
From April 2020, overdraft fees will change.
The Financial Conduct Authority (FCA) has announced that banks can only charge users a simple annual interest rate to make it easier for customers to understand exactly what they are paying. There will be no additional fees or charges.
However, in line with the new rules, it appears that banks have scrapped the unarranged overdraft fees and instead set the interest rates at around 40%.
The lowest rates are from challenger banks, such as Monzo.
The FCA has since asked banks to review how they calculated the 39.9% interest rate, but with many of the new overdraft fees starting in early February, it’s unlikely the number will change again.
Why Are Overdraft Fees Changing in 2020?
In 2017, banks in the UK made over £2.4bn from overdrafts alone, with around 30% from unarranged overdraft fees.
Banks are profiting from the financially vulnerable. And, understandably, that has to change.
The FCA has shown that people living in deprived areas are more likely to be impacted by these fees. Noting that unarranged overdraft fees can sometimes be more than ten times as high as fees for payday loans.
Overdrafts, when relied upon on a monthly basis, can be incredibly difficult to get out of or pay off. Add on high interest rates and daily fees, customers are stuck in a cycle of debt.
To support those most affected, the FCA has pushed for overdraft reform - encouraging banks to look at new ways of charging.
What Are The New Overdraft Fees?
From the new overdraft fee announcements, we’ve compiled the list of old vs. new charges based on an arranged overdraft of £500 over 30 days.
In some cases the reform has decreased the monthly cost. With all of the charges, they may be subject to individual terms and changes.
How To Pay Off Your Overdraft
If you’re in an overdraft cycle where you’re struggling to pay it down month on month and you’re worried about the effect of the new overdraft fees in 2020, you need to look at alternate ways to pay off your overdraft.
With interest rates starting from 3%, using a low-interest loan from Leap could cost you less money over time. A loan from Leap can ease the additional interest added, whilst you pay off your debts.
Use our loan calculator to see how much less interest you’ll have to pay with a Leap Loan.
Get your quote now. We use soft search so the initial quote will not affect your credit score.