Nationwide hikes overdraft fees by up to £73 a year for millions of customers
NATIONWIDE is set to hike overdraft charges by up to £73 a year for millions of customers following a crackdown on excessive fees.
Last month, the Financial Conduct Authority (FCA) said that by April next year banks must charge a single interest rate for arranged overdrafts and axe unarranged overdraft fees.
At the moment, banks often charge between £2 to £30 a month for an arranged overdraft, while unarranged fees can be much higher - up to £6 a day or £80 a month.
An unarranged overdraft - sometimes called an unauthorised overdraft - is where you spend beyond the agreed amount you're allowed to borrow set by your bank.
As a result of the crackdown, Nationwide says it will charge customers on its FlexAccount, FlexDirect and FlexPlus accounts interest of 39.9 per cent from November 11.
This is more than double the 18.9 per cent interest rate that Nationwide currently charges holders of its FlexAccount for an arranged overdraft.
The other two accounts currently charge 50p per day depending on how much you're overdrawn.
Nationwide's also scrapping the £250 fee-free buffer offered on FlexPlus arranged overdrafts and the £10 buffer on FlexDirect accounts, while all fees for unarranged overdrafts are being removed from the same date.
Research has found that these charges can sometimes be up to ten times higher than payday loans.
In 2017, banks made over £2.4billion from overdraft fees and around 30 per cent of that figure came from unarranged overdrafts.
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.
Nationwide has almost 8 million current account holders and 800,000 overdraft users per month.
It says two thirds of all customers in the red will be worse off under the changes, based on usage over the last six months.
Of those, three quarters will pay up to 20p extra per day - £73 per year.
The changes apply to both new and existing customers, who will be contacted by the building society from August 1.
Nationwide is the first major provider to act on the FCA crackdown, and other banks are expected to increase overdraft fees over the coming months too.
Martin Lewis, founder of consumer website MoneySavingExpert, said: "Nationwide's 39.9 per cent APR is far more than a high street credit card – more even than the hideous rate that most store cards charge – and roughly similar to the rates charged for those with some of the worst credit scores.
“Yet while this looks like a horridly expensive change by the country’s biggest building society, in truth overdraft charges have been hideous for a long time.
"Nationwide currently charges 50p a day on major accounts, and per day charges – especially for those with smaller overdrafts – can have effective equivalent APRs higher even than the scourge that is payday loans.
"So the shock is more due to the fact the costs are now more transparent and easier to compare.
"And while Nationwide is just ahead of the pack in doing this, new rules by the regulator mean all overdraft providers will have to charge via APR."
A spokesperson for Nationwide said: "We’ve proactively engaged with the FCA so the changes reflect the ambitions of their High Cost of Credit review which requires all overdraft providers to make a range of changes by April 2020 deadline.
"We are confident that these changes, which will be live from November, will set a new market benchmark for simplicity, transparency and control for members."
In January, Lloyds Bank was slammed for making overdraft fees more expensive and complicated for customers.
Meanwhile, as of last year, rules forcing banks to alert customers via text message before they slip into the red came into force.
Then in May, Santander had to pay £1.4million to 20,000 customers who weren't warned they'd gone into their overdrafts.
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