Lloyds to revamp overdraft charging structure but large users will be worse off

12 July 2017

Lloyds Banking Group is to overhaul the way it charges overdrawn current account customers.

From November, Bank of Scotland, Halifax, and Lloyds Bank will charge all current account customers 1p per day for each £7 of authorised borrowing. This will be charged on a daily basis, which Lloyds says is to avoid customers being hit with a large cumulative fee at the end of the month.

There will be no fees applied to account holders who use an unarranged overdraft.

The popular Bank of Scotland Vantage, Halifax Reward Current Account and Lloyds Bank Club Lloyds account are three of the accounts that will receive the new charging structure.

At present, Bank of Scotland and Lloyds Bank customers are charged a £6 fee for each month they use their overdraft – whether planned or unplanned. Depending on their balance, those using an unauthorised overdraft also pay up to £10 each day they are overdrawn - up to an eight day limit. Unauthorised users are charged 19.89% EAR. Authorised overdrafts are also charged a rate of 19.89% EAR if users go overdrawn by more than £25.

Halifax customers are charged a flat £5 a day fee for going into an unauthorised overdraft, regardless of the amount. Authorised overdrafts are charged on a tiered basis, with fees of up to £3 per day depending on the overdrawn balance.

The group says the move will help customers better understand the costs they face when going overdrawn. It adds that more than 90% of customers will be better off or unaffected by the changes.

Andrew Hagger, founder of financial information website Moneycomms, says: “This is a fairly radical move by Lloyds Banking Group and will be welcomed by customers who have in the past been hit by the high unauthorised charges under the bank’s existing tariff.

“At present someone who is £26 overdrawn without arrangement could potentially be charged £86 in unauthorised and monthly fees, something that’s very difficult to justify.”

However, Mr Hagger warns that the new charging structure won’t be better for everyone: “The new tariff is much cheaper for its customers with smaller borrowing requirements (due to the axing of the £6 monthly fee) but for those borrowing sums in four figures it starts to get more expensive – for example a £2,000 overdraft for 12 days currently costs a Club Lloyds customer £17.47 but under the new tariff it works out at £34.29.”

Which accounts offer the best interest-free overdraft?

Our two Moneywise Best Buys both give account holders a healthy interest-free overdraft. Our top pick is the First Direct 1st Account which offers a £250 interest free overdraft. Anything above that amount is charged at 15.9%.

The M&S Bank Current Account is also worth considering. This account has a £100 interest-free overdraft. Go further into the red and you’ll also be charged at 15.9%.

See this week’s Moneywise Best Buys guide to current accounts.


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