Millions of TSB customers will see their interest payments on overdrafts change from April as new one-size-fits-all rates kick in.
From April 1, TSB Classic and Classic Plus customers will be charged an interest rate of 39.9% EAR on arranged and unarranged overdrafts, the bank has announced.
It follows the likes of HSBC, Natwest, Nationwide and more who are enforcing new single rates to comply with transparency guidelines, as per the Financial Conduct Authority’s crackdown on complex overdraft charges.
From spring this year, the lender’s £6 a month arranged overdraft fee will be scrapped, with interest hiked from 19.84% to 39.9% EAR instead.
However it could be better news for those who slip into their overdraft without warning as the move will also see TSB’s unarranged overdraft daily fees scrapped.
This includes a £5 a day penalty if you go overdrawn by £10-£25 and a £10 a day fee if you slip more than £25 into the red.
TSB said it’s also reducing the maximum monthly charge cap on unarranged overdrafts from £80 to £30 a month.
However, the bank said it’s scrapping its £35 fee-free buffer – which means you’ll now be charged for going this much overdrawn.
The changes will apply to TSB’s most popular current accounts – the Classic and Classic Plus.
TSB claims that once the changes come into effect, 70% of its customers will pay the same or less for their overdraft.
Whether you’re a winner or a loser as a result of the changes will depend on how often you use your overdraft, how far you dip into it and how long you remain in it for.
Overdrafts – what’s changing?
In autumn 2019, regulator the Financial Conduct Authority announced plans to shake-up overdrafts to make their fees simpler for customers.
The changes include stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
The new rules from April 6 2020 will also ban fixed fees for borrowing through an overdraft, calling an end to daily or monthly charges.
Providers will be required to advertise overdrafts with an APR (annual percentage rate) to help customers shop around.
Several banks plan to peg their new annual overdraft rates at 39.9% as a result of it.
HSBC, First Direct and M&S Bank were first to announce new rates of 39.9% from March 14 2020.
Nationwide Building Society has already imposed a single rate of 39.9% across its adult current account range.
The new rates should, in theory, help people to understand the interest they are actually paying, which could prompt some to change their borrowing habits.
However, be careful as some borrowers may find they are worse off, while many others will end up paying less.
The FCA says around 14 million people use an unarranged overdraft each year.
More than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016.
Under the changes, the cost of borrowing £100 through an unarranged overdraft is expected to fall from a typical £5 per day to under 10p per day.
Meanwhile a typical arranged overdraft user borrows less than £250 for seven days each month.
The cost of doing this has ranged from just over 80p per month to just under £7 per month, depending who people bank with.
Going forward, a £250 arranged overdraft over seven days will now cost around £1.65 if the rate is 39.9%.
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