TSB is the latest bank to announce overdraft fee changes.
TSB will introduce a fixed interest rate fee of 39.9% on arranged and unarranged overdrafts from 2 April 2020.
Customers with an arranged overdraft currently pay a £6 monthly usage fee and have a £35 fee-free buffer.
Those who use an unarranged overdraft pay £5 per day if they’re overdrawn by £10 to £25 or £10 a day for sums over £25.
From 2 April the bank will scrap all daily and monthly fees as well as removing the £35 fee-free buffer.
TSB estimates that 70% of its customers will pay the same or less of their overdraft once the changes come into effect.
Why is TSB increasing its overdraft fee?
Lenders make more than £2.4 billion from overdrafts each year, with about 30% of this coming from unarranged overdrafts, according to the Financial Conduct Authority. 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 be banned from charging additional fixed fees.
Instead, lenders will have to use a simple interest rate to make overdrafts “simpler, fairer and easier to manage.”
How does TSB’s new overdraft fee compare?
TSB will introduce a flat fee of 39.9% for its overdrafts, making it one of the more expensive banks to use.
Customers will be charged a flat interest rate of either 15%, 25% or 35% depending on their credit score.
The table below shows how TSB’s fee for a £100 overdraft compares to other lenders. Starling Bank currently offers the cheapest overdraft fee.
|Bank||New overdraft fee||Charge over 7 days||Charge over 30 days|
How to cut the cost of your overdraft
Overdrafts can be handy for short-term borrowing.
To make sure you get the best rate on your overdraft, it’s important to shop around.
While banks are starting to introduce single flat interest rates, there is some competition in the market.
Starling Bank and Monzo, for example, offer the cheapest interest rates for eligible customers at 15% and 17% respectively.
Barclays will also keep it’s £15 interest-free buffer which could help cut the cost of going into an overdraft.
If you have a bigger overdraft, a specialist money transfer credit card could help reduce your overdraft repayments.
A money transfer card allows you to move money from your credit card to your bank account.
These cards often come with an initial transfer fee and a fixed 0% interest period.
Tesco Bank currently offers the longest 0% interest period of 28 months.