Santander has become the latest bank to introduce a single debit interest rate (EAR) of 39.9% for arranged overdraft borrowing – customers will pay 9p per day per £100 borrowed, in addition, all unarranged overdraft charges and paid / unpaid item fees will be removed meaning that 86% (six out of seven) of Santander customers who use an overdraft will pay less under the new charging structure.
The move is in response to the Financial Conduct Association’s (FCA) rules to reform the overdraft market,
Santander will be contacting all customers at least two months ahead of the changes to make them aware of the new pricing structure and provide options for the one in seven customers who will pay more based on their current overdraft usage.
Santander will also provide a range of support measures designed to help customers manage their money better.
Susan Allen, Head of Retail Banking at Santander, said “The new single interest rate, combined with the removal of all other overdraft charges from our personal current accounts, provides clear and simple overdraft pricing for our customers, with the vast majority of customers paying less and a daily fee of just 9p per £100 borrowed.”
“But we know that helping people manage their day-to-day finances effectively goes beyond simplifying overdraft pricing. 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.”
Under the FCA’s overdraft rules, customers will also be automatically enrolled for text alerts to help them avoid or prevent overdraft fees Those customers who repeatedly use overdrafts will also be contacted and, where suitable, offered a more cost-effective approach to meet their borrowing needs.
John Crossley, Head of Money at comparethemarket.com said “Santander is the latest bank to follow in the footsteps of Nationwide, HSBC and others as a consequence of the FCA’s shakeup of the overdraft market. The new rules come into effect in April 2020, so consumers should keep their eyes peeled in case their bank makes similar changes in the coming weeks and months.”
“Overdrafts can be an expensive form of borrowing and, according to our research, one in 10 UK adults prefer to use their overdraft limit to take on debt. However, it’s important to be aware that there are cheaper ways of borrowing. Providing that users engage responsibly with their debt, credit cards can be an attractive way for consumers to borrow money and manage their finances. Many credit cards have 0% APR introductory offers – but these only last for a fixed period before the user is automatically rolled onto a higher interest rate. With the average credit card APR currently around 20%, switching providers regularly can save consumers money which in turn can be used to reduce outstanding debt.”