TSB hikes overdraft rates to 40% following rises by HSBC, Barclays and First Direct
TSB customers will see overdraft fees hiked to 40 per cent from April 1 as it follows in the footsteps of HSBC, Barclays, and First Direct.
That's up from between 8.21 per cent and 19.84 per cent at present, depending on the account.
This will affect those with any one of TSB's current accounts that comes with an overdraft - Classic Plus, Classic, Student, and Graduate.
It will also impact the no longer on sale Classic Enhance, Select, Silver, Gold, Platinum, and Premier accounts.
At the same time TSB is ditching its pricey daily and monthly overdraft fees, and lowering its overall fees cap from £80 a month to £30 a month.
But it's also scrapping its current interest and fee free overdraft buffers for everyone other than Graduate and Student account holders.
How to cut 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.
On the graduate account, the buffers are changing to £2,000 if you opened or moved to the account after August 2, 2016 or to £1,500 if you opened or moved to the account before August 1 2016.
While for the Student account, the buffer will fall to up to £1,500 depending on the year of your studies.
In unarranged overdrafts, you're also charged a returned item fee of £3 for bounced payments, up to a maximum of three times a day which is remaining.
Banks have been upping rates 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.
What fees are TSB customers currently charged?
TSB's current overdraft fees are complicated, which is one of the reasons why the FCA has cracked down on them as they're difficult to compare at present.
At the moment, those with a Classic or Classic Plus account have a £35 interest and fee free buffer on arranged overdrafts and a £10 one on unarranged overdrafts.
After this buffer, they're charged 19.84 per cent if they dip into either an arranged or unarranged overdraft.
On the Graduate account, for arranged overdrafts there's a £2,010 buffer in year one, £1,510 in year two, and £1,010 in year three, plus a £10 buffer on unarranged overdrafts.
After this you're charged 16.77 per cent.
On the student account, there's up to a £1,510 buffer on arranged overdrafts depending on the year of your studies and a £10 buffer on unarranged overdrafts, after which you're charged 8.21 per cent.
Users are also all charged a £6 monthly fee if they go into either an arranged or unarranged overdraft.
On top of this, when it comes to unarranged overdrafts, which is borrowing you haven't first agreed with the bank, you're also charged £5 a day if the overdraft is between £10 and £35 or £10 a day if you go £25 and over - up to a maximum of eight times a month.
If you've got an older account that TSB no longer sells, check with it directly for your fees and charges.
What does the change mean?
TSB reckons 70 per cent of customers will pay the same, or less, than they currently do.
As an example, it says that if you borrowed £100 for seven days using an arranged overdraft today’s cost is £6.23, while from April it will be 79p.
Meanwhile, the cost of being in your unrranged overdraft for a day will go down from £6.03 to 11p.
More on banking
A TSB spokesperson, said: “From April 1, in line with industry regulation, we will be moving to a single rate for all overdrafts within our current account range and from this date, customers will be charged a fixed rate of interest (39.9 per cent EAR) for both arranged and unarranged overdrafts.
"Following these changes, 70 per cent of TSB customers will pay the same, or less, for their overdraft than they currently do."
Here's how to pay off your overdraft before banks such as HSBC, Barclays, and First Direct hike rates up to 40 per cent.