Martin Lewis, 47, appeared on ITV’s The Martin Lewis Money Show this evening. On the programme, the Money Saving Expert revealed that the Financial Conduct Authority (FCA) has re-written the rules, focusing on readjusting the annual interest rates of overdrafts to a whopping 40 percent, the money expert urged Britons to pay off their overdraft before changes take hold.
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According to Martin, millions of Britons who stay within their authorised borrowing limits could see their overdraft charges jump this year as bank lenders increase their interest payments to 40 percent.
“The FCA has re-written the banking rules, focusing on annual interest rates to make things more transparent,” Martin revealed.
“The changes are focusing on the charges on overdraft happening day by day.”
The new rules are being introduced to comply with new guidelines imposed by the Financial Conduct Authority to make charges simpler and fairer for account holders.
This also includes stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
“Banks are no longer able to charge you for going over your overdraft limit,” Martin said.
“The problem with overdrafts is that they’re a stealth debt, you don’t apply for them you just slip into them,” Martin explained.
Martin urged everyone with a bank account to find out what is changing, as everyone needs to know what they are getting themselves into before all come into effect.
Back in 2005, Martin revealed that bank charges for going over your overdraft limit were set to £35 per transaction, he said: “Back then a bank charge was £35 a pop, if you went over your overdraft limit and you went out to seven different shops, and spent £2 in each.
“Each of those seven transactions would have cost you £35, so that’s over £200 equivalent of charges,” he explained.
“If you couldn’t pay the charges what would they do? They would add more charges!
“The system is made to entrap,” he added.
However, following on from a successful overdraft campaign, which is how Martin Lewis made a name for himself, in 2009 they were able to overturn the bank charges from £35 a day to £10 a day.
“Last July, we got a ruling, finally, from the regulator to say, banks from April will no longer be able to charge you for going over your overdraft limit.
“That means if you go way beyond your overdraft limit, while they can charge you what it cost them to cover the charge, they won’t be able to inflict penalty charges,” he explained.
So what’s going to happen with the change?
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As part of the changes, several banks will increase their annual overdraft rates to 39.9 percent, according to Martin.
HSBC, First Direct and M&S Bank will all introduce rates of 39.9 percent from March 14, 2020.
However, Nationwide has already imposed a single rate of 39.9 percent across its adult current account range, while Natwest is also doing the same thing.
According to Martin, the reason for the change is to make comparing overdraft charges easier, he said:“Going from a daily rate to a monthly interest rate will make it easier to compare overdraft charges,” he explained.
Martin urged viewers to tackle their overdraft as much as they can before the change occurs in April 2020.
When a member of the public asked advice on what he should do with his overdraft, Martin suggested to him to pay off the debt, he said: “Take your savings and pay it off.”
What are the arranged overdraft charges so far?
Nationwide: Already changed – before the change, the bank used to charge 50p a day or 18.9 percent for going over overdraft limit, since change this has been increased to 39.9 percent.
First Direct: Changes to occur on 14 March 2020 – before the change, the bank used to charge 15.9 percent but following the change it will increase to 39.9 percent.
HSBC: Changes to occur on 14 March 2020 – before the change, the bank used to charge up to 19.9 percent but following the change it will increase charges to 39.9 percent.
M&S Bank: Changes to also occur on 14 March 2020 – before the change, the bank used to charge 15.9 percent but following the change it will also increase to 39.9 percent.
Barclays: Changes to occur on 22 March 2020 – before the change, the bank used to charge above 75p a day but following the change it will increase its charge to 35 percent.
RBS: Changes to occur on 27 March 2020 – before the change, the bank used to charge up to 19.9 percent plus an extra £6 a month for being over overdraft limit but following the change it will increase its rate to up to 39.5 percent.
Natwest: Changes to occur on 1 April 2020 – charged the same percentage as RBS and will also increase its rate for going over an overdraft limited to up to 39.5 percent.
Starling: Changes to occur on 1 April 2020 – before the change, the bank used to charge 15 percent but following the change the bank has announced it will increase its overdraft charge to anywhere from 15 percent up to 35 percent.
Monzo: Changes to occur on 1 April 2020 – before the change, the bank used to charge 50p per day but following the change it will increase its overdraft charge to anywhere from 19 percent up to 39 percent.
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