Customers with the bank will see their overdraft rates more than double in some cases
HSBC is hiking its overdraft charges in a move that will affect millions of account holders.
From March next year, HSBC’s customers will be charged a flat rate of 39.9% on all overdrafts. The rate is more than double the 19.9% it charges on its HSBC Account and its current account.
Up until now the rate has depended on the type of account held and whether customers have gone overdrawn without permission.
There is some good news though, the bank is introducing an interest-free £25 buffer for Bank Account and Advance customers when they go overdrawn.
It is also removing the £5 daily fee for going into an unarranged overdraft as well as reducing the maximum monthly charge from £80 a month to £20 a month.
Madhu Kejriwal, HSBC UK’s head of lending and payments, says: “An overdraft gives people a bit of flexibility with their finances especially if there is an unexpected cost or emergency repair required. The new £25 buffer we are introducing will also give people some peace of mind that a small miscalculation on spending won’t incur overdraft charges.”
“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.”
Why is this happening?
Lenders make over £2.4 billion from overdrafts a year, with around 30% from unarranged overdrafts, according to the FCA.
Under radical new plans from the financial watchdog, banks and building societies will no longer be able to charge higher interest rates on unarranged overdrafts than they do on arranged ones from 6 April 2020.
They will also not be allowed to charge fixed fees for overdrafts. Instead they will have to introduce a simple interest rate.
Nationwide was the first lender to announce it was introducing new overdraft charges in November with a rate of 39.9%.
Is this the new normal?
With HSBC deciding to charge nearly 40% for going into the red, experts are warning that this could become the new industry normal.
Andrew Hagger, personal finance expert at of Moneycomms, says: “As feared, it appears that HSBC is following the earlier move by Nationwide Buiding Society and hiking overdraft rates to 39.9% EAR from next March.
“Paying almost 40% for agreed overdrafts looks like becoming the norm even if you have a top-notch credit record - double the rate on credit cards - surely this isn't the outcome the regulator was expecting?
“Some of the big banks still haven't shown their hands but the early signs are that those using agreed overdrafts will be paying a much higher price and absorbing the costs the banks used to impose on unauthorised overdraft borrowing.”
Increase in overdraft interest rates.
FCA says that it is unfair to charge higher interest rates for unarranged overdrafts, so the banks' response is to hike the rates for arranged as well as unarranged overdrafts? Wow, the FCA did not see that one coming - unlike the millions of responsible bank account holders who manage their finances properly! The banks' response to the FCA's ruling was as obvious as night follows day.
An alternative strategy would be for the banks to block any account holder from going over their arranged overdraft - which should be straightforward as most transactions these days are by debit card, credit card, or on-line banking (I do see some problems with cheques however).
The FCA needs to rethink this one - so the majority of responsible bank account holders do not have to subsidise the minority reckless ones!
HSBC Overdraft Raste
The PROPOSED common overdraft rate is unadulterated usury; the Bank of England, Treasury and (utterly ineffectual/incompetent) FCA should be petitioned immediately. I suggest that Moneywise initiates a full-blooded publicity attack; e.g. on Radio 4 Moneybox. Utterly disgraceful.