Starling Bank customers to face overdraft fees of up to 35%

16 December 2019

Customers with the challenger bank could see their overdraft fees more than double in April 2020

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Starling Bank will increase overdraft fees for customers with lower credit scores, which could more than double what some people are charged now. 

Currently, customers who dip into their arranged overdraft are charged a flat interest rate of 15% AER. Those who accidentally go into their unarranged overdraft face an additional maximum monthly charge of £2. 

From 1 April 2020, Starling Bank customers will be charged either 15%, 25% or 35% depending on their credit score. The additional £2 monthly charge for unarranged overdrafts will also be scrapped. 

Customers will receive a letter to notify them if there are any changes to their overdraft fee rate over the coming weeks.

Starling says the new pricing structure will help “reflect the true cost” of offering overdrafts while continuing to “offer the best current account possible.”

Anne Boden, the chief executive and founder of Starling is combative in the blog post however, highlighting what she sees as deceptive practices from other banks.  

She writes: "We’re not the only bank making changes to overdraft charges. Most other banks are having to fall in line with the new FCA reforms.

"But don’t be surprised if you see them presenting their overdraft pricing changes merely as a ‘simplification’ when in fact they also represent a massive increase.

"Or if they boast about how many of their customers will be better off under their new pricing structure but fail to mention that this is because their original daily charges were so high."

Why is Starling Bank increasing its overdraft fees?

Lenders make over £2.4 billion from overdrafts each year, with around 30% coming from unarranged overdrafts, according to financial regulator the FCA. The financial watchdog has unveiled new plans to overhaul the industry.

From 6 April 2020, banks and building societies will no longer be able to charge higher interest rates on unarranged overdrafts than they do on arranged overdrafts.

They will also not be banned from charging fixed fees on overdrafts.

Instead, lenders will have to use a simple interest rate to make overdrafts “simpler, fairer and easier to manage.”

Nationwide was the first to announce it was introducing a new single interest rate charge of 39.9% in November. HSBC, first direct and M&S Bank have since followed suit and have introduced a flat overdraft charge of 39.9%.

Rival challenger bank, Monzo recently announced it will replace its daily 50p overdraft fee with a new risk-based model. Monzo customers will be offered either 19%, 29% or 39% AER for their overdraft depending on their credit score.

How Starling Bank’s overdraft fees compare

Starling Bank still offers some of the most competitive overdraft interest rates out of the providers who have announced changes to their fee structure.

The table below shows how Starling Bank’s fees for an overdraft of £100 compares to the other providers

Bank  New overdraft fee Charge over 7 days Charge over 30 days
Nationwide 39.90% 65p £2.79
HSBC 39.90% 65p £2.79
first direct 39.90% 65p £2.79
M&S Bank 39.90% 65p £2.79
Monzo 19%/29%/39% 33p/49p/63p £1.44/£2.11/£2.74
Starling Bank 15%/25%/35% 27p/43p/59p £1.16/£1.86/£2.52

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