Many people use their overdrafts as a matter of course, tending to pay if off each month with their salary and then going back into the red. But if you are one of these people and bank with either Lloyds or Halifax, you might want to change your practise. Following on from Santander, who raised their overdraft charges back earlier this year, Lloyds and Halifax are now also increasing the cost of being overdrawn from Tuesday, October 2 and Friday, November 2 respectively. What this means is, if you are overdrawn on these dates you will automatically start paying more in charges. But how much more?
Lloyds are increasing overdraft interest rates on its Classic, Select, Silver and Gold accounts to 19.94% AER (annual equivalent rate). They are also increasing rates for their Platinum account holders, which will see them increase from 14.28% to 17.28%, while Premier account customers will see overdraft rates raised from 12.43% to 15.43%. However, some good news is that the Classic and Silver accounts will now carry buffers of £25 and £50 respectively, (previously it was £10), and Gold account customers will see a rise of the existing £100 overdraft shelter to £150, whilst Platinum account holders will see theirs rise from £250 to £300. There is no change on the buffer on Premier account of £500. Lloyds are claiming that these changes will not have much impact on customers, stating that ‘many customers will pay the same or less for their overdrafts’. But is this true? Experts at MoneySupermarket have been number crunching and come up with the following:
If you were £2,000 overdrawn with a Lloyds Classic account, the annual cost over the year would currently stand at £438.84. When the new charges kick in from October 2, this amount will rise to £460.44 – an unremarkable difference of £21.60. If you are £100 overdrawn, the difference will be a negligible £2.50 a year.
However, if you are a Halifax customer, banking with their Current Account, Reward account, or Ultimate Reward account, you might want to see if there is any way you can clear your overdraft. This is because customers with particular levels of borrowing will really feel the impact of the hikes. As it stands, on aforementioned accounts, Halifax currently charges £1 a day for authorised borrowing up to £2,500, and £2 a day above £2,500. However, from November 2, the £1 a day will only apply to borrowing of up to £2,000. If your overdraft is between £2,001 and £3,000, you will be charged £2 a day – while a new tier of £3 a day will be introduced on borrowing above £3,000.
This means that if you go over the £2,000 mark with Halifax, charges will double on the entire balance. So, if you were overdrawn by £2,001 previously before the charges hike, it would currently cost you £360 in charges. But from when the changes take effect, this cost will rise to £720 which is a difference of £360. Double the amount you were previously paying.
So what’s the alternative? Our advice is to shop around for an account that does not penalise you for going overdrawn. Currently the best bank accounts that offer a 0% AER rate are Nationwide and Santander. Nationwide offer a 0% EAR for the first three months and a 0% buffer for three months, whilst Santander offer 0% for the first four months but no buffer.
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