New research by Moneyfacts.co.uk reveals that over the past 12 months the average unarranged overdraft fee has fallen from £53.61 to £39.23.
Last year, NatWest and Royal Bank of Scotland made efforts to reduce fees on some accounts, and in November, Lloyds Bank decided to scrap both its £6 per month usage fee and £5 daily unarranged fee from various accounts. Now, Santander is also poised to slash the unarranged daily fee on multiple accounts in two weeks’ time.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, said “The landscape for overdrafts is clearly changing to appeal to borrowers who fall into unarranged debt. Gone are the days when it was more common for providers to charge simple interest on overdrafts, as monthly or daily flat fees have been introduced for transparency instead. However, comparing deals remains a complex maze. Some banks are responding to calls to cap or reduce the most expensive charges, which include unarranged overdraft fees. This coincides with the FCA’s bid to help people avoid high-cost credit, which is a welcome intervention considering 3.1 million consumers used an unarranged overdraft in 2017. It’s little wonder that expensive overdrafts face heavy criticism if consumers can only afford to pay the fees.”
“Santander is making a positive move by scrapping its £6 per day unarranged overdraft charge on the Select, Private, 123 Lite and 123 current accounts next month, but while the change will help those who struggle to escape their unarranged limit, the daily charges of £1, £2 or £3, depending on the overdraft, remain intact for those diving into their arranged overdraft and will apply to those hitting their unarranged limit as well. The overall charge cap on the Everyday Current Account is currently £95 for both arranged and unarranged overdrafts, but from 10 July it will change to a £50 cap and will only cover borrowers using their unarranged facility. Customers will still be charged up to £3 per day on their arranged overdraft, so after 30 days in the red, they could still breach the safety net of £95. This may encourage Everyday customers to switch to a different Santander account, but they must be mindful of monthly account fees.”
“It is hoped that with more personal finance education, people will become more assertive and refrain from relying on the convenience of an overdraft. However, this will not happen overnight, especially without more protection put in place for those currently struggling with debt.”