Banking customers who use their arranged overdraft may find the cost to borrow rise over the next month as current account providers set out to ban usage fees in response to the Financial Conduct Authority’s (FCAs) overhaul to make things fairer.

The latest research by Moneyfacts.co.uk has revealed that one brand has doubled the cost to borrow on its arranged facility, despite the fact that it had previously not charged a usage fee. The analysis shows that a large portion of providers will charge between 34.0% and 39.9% moving forward. The total costs may have fallen for some customers after the fee ban, but not for everyone based on the workings of £500 borrowed over 30 days.

Findings from the report also indicated that:

  • Consumers who borrow £500 over 30 days on their arranged overdraft could find their fees rise by £6.82 with a high street current account provider. Many accounts selected in the comparison will be more expensive on this basis.
  • At the same time, someone using an unarranged facility for 30 days and borrowed £500 could see their fees fall by over £60. Only one account will now cost more on this basis.
  • Borrowers could now find it cheaper to borrow using a credit card, where rates start at 9.9% APR.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, said “Banking customers who dip into their arranged overdraft facility could well find they are paying double the amount in charges as a result of firms repricing their tariffs to meet the FCA’s fixed fee ban. The much-needed overhaul of the charges has been a double-edged sword for some, while Barclays, Halifax, Lloyds, Monzo, Santander and Virgin Money are among those providers that will charge less.”

“Meanwhile, Metro Bank has recently announced it will charge customers £6.40 more, hiking its 15.0% rate to 34.0%, even though it did not charge usage fees before and was one of the most competitive tariffs on the market. Other challenger banks do not appear to be following suit though, in fact Monzo will charge 19.0% instead of £0.50 per day and save customers £7.80, Starling Bank will keep its 15.0% rate and Virgin Money’s new tariff will save customers £3.34.”

“The banishment of the most extortionate fees among the biggest brands could result in an astonishing saving, Barclays Bank Account customers will save over £10 in charges when using their arranged overdraft – but any savings will depend on the provider and current account someone holds. This then could spur consumers to switch as they will also now be able to compare overdraft tariffs much more easily now that usage fees are banned.

“As some of the most well-known brands are pricing their tariffs between 35.0% and 39.9%, there isn’t too much difference to choose between them for a cost-saving, so we could see an uplift in customers switching to challenger banks that are a cheaper alternative.

“Clearly borrowers will need to think carefully about whether an overdraft will be the most cost-effective method to borrow, as a credit card could well be a cheaper alternative – in fact, some store cards now charge less. The lowest purchase rate on a standard credit card is 9.9% APR, at the moment store cards charge up to 29.9% APR and the average credit card rate on the market is currently 24.8% APR. Credit cards can be just as convenient as using a bank account to borrow and they offer additional protection under Section 75 of the Consumer Credit Act.”

“It will be interesting to see whether these new charges will be revisited in the coming months or if customers start to see other account perks slashed in light of the shake-up.”

*Current account analysis – Arranged overdraft charges
    Old charges New charges
Provider Account Interest rate (EAR) Interest free amount Usage fees Total cost for £500 over 30 days Interest rate (EAR) Interest free amount Total cost for £500 over 30 days
Barclays Bank Bank Account 0.00% £0.75 per day £22.50 35.00% £12.49
first direct 1st Account 15.90% £250 £0.00 £3.05 39.90% £250 £7.00
Halifax Reward Current Account 0.00% £0.01 per £6 OD per day £24.90 39.90% £13.99
HSBC Bank Account 17.90% £0.00 £6.81 39.90% £25 £13.29
HSBC Advance 19.90% £0.00 £7.52 39.90% £25 £13.29
Lloyds Bank / Bank of Scotland Classic 0.00% £0.01 per £6 OD per day £24.90 39.90% £13.99
M&S Bank M&S Current Account 15.90% £100 £0.00 £4.88 39.90% £250 £7.00
Metro Bank Current Account 15.00% £0.00 £5.78 34.00% £12.18
Monzo Bank Monzo Current Account 0.00% £0.50 per day £15.00 19.00% £7.20
Nationwide BS FlexAccount 18.90% £0.00 £7.17 39.90% £13.99
Nationwide BS FlexDirect 0.00% £0.50 per day £15.00 39.90% £13.99
NatWest / Royal Bank of Scotland Select Account 19.89% £6.00 per month £13.51 39.49% £13.87
Santander 123 Current Account 0.00% £1.00 per day £30.00 39.90% £13.99
smile Current 18.90% £0.00 £7.17 35.90% £12.77
Starling Bank Current Account 15.00% £0.00 £5.78 15.00% £5.78
The Co-operative Bank Current Account 18.90% £0.00 £7.17 35.90% £12.77
TSB Classic Plus 19.84% £35 £6.00 per month £12.97 39.90% £13.99
Virgin Money / Clydesdale Bank / Yorkshire Bank Virgin Money Current Account ** 12.50% £6.00 per month £10.86 19.90% £7.52
Further details available on request. **Old overdraft charges based on B Current Account, which was withdrawn from sale on 29.11.19. OD = Overdrawn. Source: Moneyfacts.co.uk

*Data note: Charge based on a customer borrowing £500 over 30 days in their arranged limit. Unarranged charges may differ, please refer to alternative data table for more information. Brands and accounts shown in supporting table are a selection and are not the entirety of the current account market.

Current account analysis – Unarranged overdraft charges
    Old charges New charges
Provider Account Interest rate (EAR) Usage fees Cap Total cost for £500 over 30 days Interest rate (EAR) Cap Total cost for £500 over 30 days
Barclays Bank Bank Account 0.00% £0.00 £0.00 0.00% £0.00
first direct 1st Account 0.00% £5.00 per day £80.00 £80.00 39.90% £20.00 £13.99
Halifax Reward Current Account 0.00% £0.00 £0.00 0.00% £0.00
HSBC Bank Account 0.00% £5.00 per day £80.00 £80.00 39.90% £20.00 £13.99
HSBC Advance 0.00% £5.00 per day £80.00 £80.00 39.90% £20.00 £13.99
Lloyds Bank / Bank of Scotland Classic 0.00% £0.00 £0.00 £0.00
M&S Bank M&S Current Account 0.00% £0.00 £0.00 N/A N/A
Metro Bank Current Account 15.00% £0.00 £60.00 £5.78 34.00% £12.18
Monzo Bank Monzo Current Account 0.00% £0.50 per day £15.50 £15.00 19.00% £7.20
Nationwide BS FlexAccount 18.90% £0.00 per day £50.00 £7.17 0.00% £0.00
Nationwide BS FlexDirect 0.00% £5.00 per day £50.00 £50.00 0.00% £0.00
NatWest / Royal Bank of Scotland Select Account 0.00% £8.00 per day £80.00 £80.00 39.49% £20.00 £13.87
Santander 123 Current Account 0.00% £0.00 £0.00 0.00% £0.00
smile Current 18.90% £10.00 per day + £10 per month £60.00 £60.00 35.90% £60.00 £12.77
Starling Bank Current Account 15.00% £0.00 £2.00 £2.00 0.00% £0.00
The Co-operative Bank Current Account 18.90% £10.00 per day + £10 per month £60.00 £60.00 25.90% £60.00 £9.56
TSB Classic Plus 19.84% £10.00 per day + £6 per month £80.00 £80.00 39.90% £30.00 £13.99
Virgin Money / Clydesdale Bank / Yorkshire Bank Virgin Money Current Account** 0.00% £6.00 per day £100.00 £100.00 19.90% £7.52
Further details available on request. **Old overdraft charges based on B Current Account, which was withdrawn from sale on 29.11.19. OD = Overdrawn. Cap = Cap of fees in a month. Source: Moneyfacts.co.uk