Overdraft charges for some HSBC could quadruple in March of next year when the bank plans to adopt a single 39.9% interest rate for anyone in the red.
The bank currently charges between 9.9% and 19.9% on arranged overdrafts, but the new increased rate will apply across the board, except for student accounts.
The blow has been softened slightly by the removal of the £5 daily fee for going into an unarranged overdraft and the adding of an interest free buffer of £25 to Bank Accounts and Advance Bank Accounts, providing leeway for those going slightly overdrawn.
HSBC claims that as a result of the changes 7 out of 10 people who used an overdraft would be better off or the same.
Head of lending and payments Madhu Kejriwal said: “By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions.”
The bank says the changes are its response to plans by the Financial Conduct Authority (FCA) to shake up the UK’s ‘dysfunctional’ overdraft system.
The guidance included a demand that banks should stop charging higher prices for unarranged overdrafts.
The UK has around 26 million overdraft users and critics claim they have been ‘a huge cash cow’ for banks and building societies which made more than £2.4 billion from them in 2017.
As the HSBC move mirrors the previous decision by the Nationwide Building Society to up its overdraft rate to the same level, some commentators believe it may become ‘the new normal’.
The new normal?
Banking editor at MoneySavingExpert.com, Helen Saxon, said: “With both of the first banks to announce changes moving overdraft interest rates to around 40%, we have to wonder if this is the new normal.”
Founder of personal finance site Moneycomms, Andrew Hagger, agreed, but questioned whether the move was what the FCA had expected.
He said: “Paying almost 40% for agreed overdrafts looks like becoming the norm even if you have a top notch credit record, double the rate on credit cards. Surely this isn’t the outcome the regulator was expecting?
“Some of the big banks still haven’t shown their hands, but the early signs are that those using agreed overdrafts will be paying a much higher price and absorbing the costs the banks used to impose on unauthorised overdraft borrowing.”
Finance expert Rachel Springall said: “It’s disappointing to see such a hike in overdraft charges but there may be more brands coming out in the coming weeks to announce changes too.
“This shake-up is designed to make things fairer and more transparent to consumers.
Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine.”