Amidst all the financial news prompted by a global pandemic, there have been a few financial events that have slipped under the radar. This is understandable. We take a look at one – changes to overdraft charges.
As you probably know, overdrafts can be a handy safety net for bank and building society customers. With an arranged overdraft, you can access extra funds when money is tight. Naturally it tends not to be free of charge, and there will be interest rates involved. There may also be a monthly fee for using the facility. And recently, financial institutions made a group change to the terms and conditions. These new rules can hit overdraft users in the pocket severely.
In the old days, you would be charged an interest rate on any overdraft usage and a small monthly fee too. Mine was about £6, wit 20% interest on borrowings. Recently the rules changed though and fees were eradicated. This was not good news for users though, as the interest rate was set at a near uniform 40%. This would cost most borrowers a lot of extra money in interest charges. Suddenly overdrafts were a much less attractive proposition.
These new terms were due to be introduced in April. However, with the advent of a global pandemic, they were suspended for at least three months. So expect them to arrive some time in June or July. They will still happen at some point, so those that use their overdraft need to push hard to reduce their debt.
The FCA forced financial institutions to introduce help for customers during the pandemic. This involved no interest charges on the first £500 of an overdraft for three months, and the delay of the new rates. Of course all institutions had to offer payment holidays on various products too. From credit cards to loans to mortgages. These measures will not last, so expect a return to normal charges and fees by July. It is also important to note that interest will continue to build up during payment holidays. You will end up paying more in the long term, so only take holidays if you absolutely need to.
The new charges were once more led by the FCA, who seem pleased at a simpler system where only a set interest rate can be charged, free of fees. No fees is always welcome of course, but their claim n their site that this will leave most customers better off is simply rubbish. By doubling interest rates, this will clearly not be the case. Good intentions does not seem to have led to a better deal for consumers.