RBS and NatWest to hike overdraft fees up to 40% from 20%
ROYAL Bank of Scotland and sister bank NatWest are hiking overdraft fees up to 39.49 per cent from the end of March.
They're the latest banks to announce rate rises, after HSBC and First Direct revealed similar changes in December.
They followed Nationwide's announcement in July, hiking overdraft charges by up to £73 a year from November 11.
The shake-up comes amid new rules being introduced from April 6 by the Financial Conduct Authority (FCA) that will see banks banned from charging rip-off overdraft fees, although they can still charge interest.
Currently, a majority of RBS and NatWest current account customers pay 19.89 per cent in interest on arranged overdrafts above £10, plus a monthly fee of £6.
And if you slip into your unarranged overdraft, you currently have to fork out a £8 daily charge.
But from the end of March or beginning of April (the exact date depends on your account), the fees will be scrapped and users will instead be charged a flat rate of 39.49 per cent on both arranged and unarranged overdrafts.
The changes don't apply to Reward Black and Premier Select customers, who'll instead be charged 19.49 per cent on both overdrafts.
These accounts require you to earn at least £100,000 per year though, so they're out of reach for the average Brit.
How to cut down your overdraft costs
THERE are a few ways to cut overdraft costs, and which suits you will depend on your situation. Here are a few options advised by MoneySavingExpert:
Spend less each month – do a proper budget and have a look at what you’re spending on.
Could you cut your morning coffee, or go down a brand at the supermarket?
Or, are you paying too much on your bills – if you haven’t switched energy, insurance and broadband recently, then it’s likely you could save £100s or even £1,000s over a year.
Move your bills – this can be dangerous if you’re not disciplined, but if you move your bills to just before payday rather than just after, many will be in credit (or less in the red) for less of the month, meaning you’re charged less for the overdraft. But – remember those bills are coming out, so don’t treat it like you’ve extra money to spend.
Move bank account - there are plenty to choose from and you can end up saving money.
Shift your overdraft on to a money transfer card – and don’t build it back up again.
Try setting up "pots" - sort your cash at the start of each month, so you have a bills pot, a spending pot etc. Use this technique to make payments to your overdraft, eg £100 a month, treating it like any other bill.
RBS and NatWest are also removing the £10 buffer for the majority of accounts, meaning those who dip into arranged overdrafts will pay more each time.
For example, a select current account customer with an arranged overdraft of £500 currently racks up charges of £13.51 over 30 days, but this will increase to £13.87 due to the changes.
But if you constantly go into the red of an unarranged overdraft, the overall amount you can be charged each month will fall to £20, down from £80.
The banks refused to share how many of their customers currently use their overdrafts when contacted by The Sun.
RBS Group has a total of 19million customers across the globe.
The move is expected to be followed by the other banks, but Barclays and Lloyds Banking Grop are yet to share any details.
Santander told The Sun last month it'll announce rates at least two months' before any changes.
Challenger Starling Bank currently offers the lowest overdraft rate of 15 per cent, so if you often dip into the red it may be worth considering.
Although, from April 1 it'll change its overdraft rates to 15, 25 and 35 per cent - the rate you get will depend on your credit score.
If you're constantly finding yourself in the red, it's worth following the tips in the box above to reduce your costs.
Rachel Springall, finance expert of comparison site Moneyfacts, told The Sun: "It’s unfortunate to see another bank increasing its overdraft interest charges but it seemed inevitable after Nationwide, HSBC and First Direct announced hikes.
"Anyone struggling with debt should seek out a debt advice charity for support - even if it isn’t huge problem now - debts can easily get out of control but there is help out there to get someone back on track."
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Last year, Lloyds Bank was slammed for making overdraft fees more expensive and complicated for customers.
Meanwhile, rules forcing banks to alert customers via text message before they slip into the red came into force.
In November, NatWest and RBS announced they're scrapping cashback on bills for roughly 1.7million customers.