Santander has become the latest bank to set a single overdraft rate of 40%.
The bank has also announced that holders of its popular 123 current account will see their interest slashed from 1.5% to 1% from May 5th causing some commentators to label it ‘a dead duck’.
‘Dysfunctional’
The moves come in response to tough new rules designed to protect consumers with the Financial Regulation Authority (FCA) vowing to shake up the ‘dysfunctional overdraft market’.
The rules come into force in April and are aimed at stopping banks and building societies charging higher prices for unarranged overdrafts by requiring providers to charge a simple annual interest rate on all overdrafts and to get rid of fixed fees.
Arranged
Nationally about 19 million people use an arranged overdraft with another 14 million slipping into the red occasionally with an unarranged facility.
Around 7.3 million use both, slipping into an unarranged situation after using all of their arranged credit.
Banks and building societies made around £2.4 billion from overdrafts in 2017 and around 30% came from unarranged fees and charges.
First
The Nationwide Building Society was the first to put up its rate, followed by HSBC and RBS. Barclays has set its rate at 35%.
Anyone using an unarranged overdraft will be better off under the new rates , but some with an arranged facility will be worse off.
Difficult decisions
Santander head of retail banking, Susan Allen, said: “While we have had to make some difficult decisions in the current environment, our current account range remains very competitive.
“We have a range of support services in place – from our over-the-phone experts to our in-branch workshops – and would encourage any customer who would like help in understanding the impact of these changes, or any other aspect of managing their money, to get in touch.”
