New overdraft charges kick in from April 2020.
NatWest and RBS have become the latest banks to significantly increase how much they charge some customers who go into their agreed overdraft.
An agreed or arranged overdraft allows you to borrow more money than you have in your account, up to an agreed limit.
From 2nd April, NatWest and RBS are will double the interest rate charges on agreed overdrafts, from 19.89% to 39.48%.
The banks say that around a quarter of customers who use their overdraft will be worse off as a result of the changes.
The new rate is around twice as high as interest rate charges on most standard credit cards.
A previous £10 buffer that would allow a customer to go into their overdraft without being charged is also being removed, so the higher interest rate will be charged on the whole arranged overdraft.
NatWest and RBS will no longer charge a £6 a month arranged overdraft usage fee.
The dramatic interest rate hike follows a similar reaction from other banks last year to new rules from City watchdog the Financial Conduct Authority (FCA) that were meant to curb unfair overdraft charges.
HSBC announced that from 14 March customers using an agreed overdraft would see their charges rise from between 9.9% and 19.9% to almost 40%.
Nationwide did the same, changing its policy from 11 November 2019 to charge 39.9% on agreed overdrafts, as did First Direct, also to 39.9%.
Challenger banks Monzo and Starling have joined the charge hikes for customers. Their overdraft interest rates now range from 19% to 39%.
The banks have said the move is to comply with the FCA’s High Cost of Credit review. The review criticised financial institutions for charging customers with unarranged overdrafts more than those with agreed overdrafts.
Instead of lowering the interest rates they charge for unarranged overdrafts, banks are raising the charges on agreed overdrafts, to the charges the same for everyone.
A spokesperson for NatWest says: “The majority of our customers, that use their overdraft, will pay the same or be better off as a result of these changes.”
FCA overdraft charges review
I cannot believe some of the comments made e.g. fixed price overdraft fees were overdue for abolition. Nationwide was charging me 50p per day for an arranged overdraft, via packaged FlexPlus account. My pension income is mostly from share dividends, which are not paid on any kind of monthly schedule. So this arrangement suited me very well, to smooth my income flows. Especially as my OD agreed limit was £7k, so using it to the full was pretty cheap. Now it is 39.9%, double my credit card rates. So thanks for nothing FCA, the commentators and agitators! Let's hope Bailey is better at running the BoE... Can only hope that the FCA makes further changes to sort this mess out, ASAP, or a lot of the more vulnerable people are going to be destitute very quickly