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The UK’s major banks and building societies are set to increase the interest they charge on overdrafts as part of a major change due to come into effect from April.
There are three main changes being introduced which will affect personal and a business’s overdrafts. These are:
- Interest on all overdrafts will be charged at a single annual interest rate (APR).
- No daily or monthly fees for using your overdraft.
- The same interest rate for arranged and unarranged overdrafts.
These changes have been introduced to the UK banking sector via the Financial Conduct Authority (FCA) as a response to high overdraft charges for those who use their overdraft.
The changes mean that you might no longer be able to use your interest-free overdraft and overdraft buffer.
Some banks have already pre-empted the changes in April and introduced higher rates, while others have announced they will at the start of April.
Those who have announced changes will charge between 15 per cent and 40 per cent APR on overdrafts, which could mean significant bills at the end of each month for those who use their overdraft facility.
Those businesses and individuals who find themselves in their overdraft for most of the month are likely to find that these changes will cost them more and they may wish to take the following steps:
- Speak to your bank or building society
- Explain your circumstances – your provider is obliged to take this into consideration when setting interest rates
- If you struggle to pay bills or fall into debt, or you are already in debt, you should seek help.
It is worth noting that in some cases, businesses or individuals may be significantly better off after these changes thanks to the removal of fees on unarranged overdrafts.