RBS and NatWest customers face overdraft rate hike
Thousands of RBS and NatWest customers face paying more in overdraft fees after being automatically switched to current accounts with higher charges.
A total of 140,000 customers with money in seven old accounts that the bank no longer offers will be moved to its standard Select account, which has an overdraft rate of more than 18%.
Earlier this month, Moneywise revealed NatWest Select account has the UK's most expensive authorised overdraft fees, at almost 1,500% - or 15 times - more than the cheapest available through a mainstream bank.
Exclusive research for Moneywise by Moneycomms.co.uk revealed the cost of going overdrawn by £400 for four days a month with a NatWest Select account is a whopping £82.46. It would cost just £5.23 with the First Direct Current Account.
NatWest charges a £6 monthly fee for authorised overdraft usage plus interest at 19.89% EAR. First Direct's charging structure is 15.9% EAR but the first £250 of overdraft used is interest free.
The bank said it expects the switch to mean around a third of affected customers will see their overdrafts charges increase.
Those affected are customers with NatWest's Personal Current and Gold Plus accounts and RBS' Personal Current, Gold Cheque, Private and Private Banking current accounts and the Child &Co current account.
More expensive borrowing
Andrew Hagger from Moneycomms told Moneywise the increase in costs will, of course, depend on the amount borrowed but the hike in interest to more than 18% and the £6 monthly fee is likely to make it a very expensive form of borrowing.
For example, if someone was to borrow £250 for three days a month at an interest rate of 2.5% – the rate that was offered for those with a Gold Account – customers would pay £72.61 compared to £77.75 a year with the new rate.
The rate rise will impact those with higher borrowing needs. If customers were now to borrow £2,500 for 14 days every month, it would cost them £282.35 a year, compared to just £100.76 with the old account – a jump of £181.59 over 12 months.
Hager added: "There are plenty of cheaper overdraft options out there – this is a perfect example of why people should shop around.
"The cost of an agreed overdraft varies greatly between the main banks and building societies and because of the different types of charging tariff they use it's a tricky job for consumers to fathom out the cheapest deal."
The silver lining
David Mann, money expert at uSwitch.com, added: "The silver lining for affected RBS and NatWest account holders could be that they take this as an opportunity to switch to a new, better account.
"With competition for new customers really hotting up, there are many accounts out there that could leave you better off. Barclays has today introduced its new Blue Rewards programme that will heavily reward customers, Halifax offers a £5 monthly cash reward on current accounts and Santander's 123 account with cashback could boost your balance if you have a hefty grocery spend or high utility bills."
A spokesperson for the bank said: "We are focused on offering simpler products and fewer of them.
"We've removed all of our off-sale products from our savings range and now we're working through our current accounts. This is just one step we're taking to remove complexity for customers and rebuild their trust."
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.