Martin Lewis: Are you one of 20 million customers whose overdrafts fees have just changed?
- Credit: Archant
If you bank with Lloyds, Halifax or Bank of Scotland, listen up.
You're one of more than 20 million people across the UK who've had their overdraft charges changed and for some it can mean paying £100s more a year.
Yet at the same time the overdraft market has never been more competitive with three banks offering 0% overdrafts.
The changes to the Lloyds Banking group's charges hit a couple of weeks ago – and now people are seeing their statements my mailbag is filling up, with many shocked at the cost.
Danny tweeted me to say: 'New overdraft fees are £3.18 per DAY. I'm £2,500 overdrawn! Way beyond simple change in terms... HELP!'
This has been a root and branch reform of charges. Before, some of its brands charged a flat daily fee, others a monthly charge and daily interest.
Now it'll charge 1p per day for each £7 you're overdrawn, which works out to £1 a day per £700 of overdraft (so around £30 a month if you're that far in continually). It's also got rid of charges for busting your overdraft limit.
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While there are more winners than losers, the winners' gains are smaller than the losses for those who lose out.
• Losers: Those with overdrafts in the thousands, or those constantly overdrawn in the high hundreds. For example, if you were constantly £2,500 overdrawn you'd be charged £110 compared to £40-60 before.
• Winners: Those with smaller overdrafts or who previously bust their limit will pay less. Someone £100 overdrawn for a week now pays £1, compared with £6-7 before.
If you're paying too much for your overdraft, ditch and switch.
When you apply to a new bank you will be credit scored – it's often not too harsh – but you can be rejected or given a low overdraft limit. Here are the top deals.
• Switchers to www.firstdirect.com get a free £100 and may qualify for an ongoing fixed £250 0% overdraft (15.9% EAR above that). So if you're less than £350 overdrawn, switch and after the free cash you'll only owe £250 at no cost.
• www.hsbc.com Advance gives switchers a free £150 (and another £50 if there after a year) and a six-month 0% overdraft (only do it if you can clear in that time), which it says is typically £1,000.
• www.nationwide.co.uk FlexDirect gives switchers a 0% overdraft for a year (50p/day after) and, anecdotally, limits here can be pretty high too.
It's also possible to use special money transfer credit cards to shift larger overdrafts to credit cards at 0%. This can be a very powerful way to cut your overdraft cost. See www.moneysavingexpert.com/moneytransfers.
Of course the rate isn't everything: it's also important to manage overdraft correctly.
- Shift your direct debits to minimise fees. Ask the companies you pay to shift your direct debits to just before you're paid.
- Do a proper budget. Look at your bank statements over the past year – you must look at the full year so it accounts for big one-off spends like birthdays, car insurance, holidays etc – and add up everything coming in and going out. Then look at where you can cut back on your spending.
- Beware of busting your overdraft limit. Charges for this are generally hideously expensive. Even payday loans are usually cheaper than huge fees you're charged just for going a penny over.
- Shift to a no-overdraft account. Basic bank accounts provide a no-frills current account service. They used to charge fees if you spent more than you had, eg, for unpaid direct debits, but since January last year those have stopped.
- If you're struggling to get out of the bank charge circle, ask your bank to refund the charges. While it's harder now, reclaiming bank-charges can still be done. But you need to be in genuine financial hardship to claim. Write a formal complaint to the bank and explain how the charges caused you hardship, and if that fails go to the free ombudsman. Full help and free template letters are at www.mse.me/reclaimbank.
Martin Lewis is the founder and chairman of MoneySavingExpert.com