HSBC has announced that it will bring in a single overdraft rate of 39.9% for its customers from March 2020, quadrupling the rate it charges some customers. As part of the move, the bank is removing a £5 daily fee for going into an unarranged overdraft and introducing an interest-free £25 buffer on some accounts.
HSBC said that as a result of this and the removal of the £5 daily fee for unarranged overdrafts, seven in ten who use an overdraft would be better off or the same as a result of the changes. The bank has over eight million current account holders in the UK.
Madhu Kejriwal, HSBC UK’s Head of Lending and Payments, said “By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions.”
The move comes in response to Financial Conduct Authority’s (FCA) plans to shake up the “dysfunctional” overdraft market – including stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts. According to the FCA, there are 14 million people in the UK who use unarranged overdrafts.
John Crossley, Director of Money at comparethemarket.com said “It is likely that we will see more providers follow in the footsteps of Nationwide and HSBC as a consequence of the FCA’s shakeup of the overdraft market earlier this year. 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.”