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Coronavirus: Overdraft changes and help available to bank customers

Changes to overdraft charge rules were temporarily put on hold when the pandemic hit. Here’s how you might be affected.

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As things change rapidly during the coronavirus (COVID-19) crisis, this guide will be updated regularly to reflect changes in rules and regulations.

Many bank accounts provide customers with overdrafts, allowing them to borrow money from their current account provider on a short-term basis. The terms that governed current account overdrafts used to vary from bank to bank, and for different types of current account.

But earlier this year the Financial Conduct Authority (FCA), the banking regulator, introduced rules designed to help customers compare different banks’ overdraft rates in a simpler, uniform way. 

These new rules meant that banks could no longer levy overdraft charges on a monthly or daily basis, but would have one clear annual interest rate for overdrafts, known as an equivalent annual rate (EAR).

The EAR indicates the amount you would have to pay if you remain overdrawn on your current account for a year.

One consequence of these changes was that these annual rates are eye-wateringly high, particularly when compared to credit card interest rates. Many accounts would display overdraft rates as high as 40%. 

The changes apply both to the interest rates and fees charged on both arranged and unarranged overdrafts.

These rules were due to come into force on 6 April, the start of the new tax year. But the FCA temporarily delayed the introduction of the new rules for three months.  

This was done to make sure that nobody would pay more in overdraft fees than they would have done before the new rules were due to come in. 

But that 3-month buffer period ended on 9 July 2020. What this means for you will depend on how your bank has implemented the new overdraft rules, as well as on your individual financial circumstances.

Although the FCA have now implemented these new rules, they have ensured that help is still available to vulnerable customers who have had their income hit by Coronavirus.

Help if your income has been hit by Coronavirus 

The FCA has said that banks have to give customers a 3-month ‘buffer’ period where the first £500 of an overdraft is interest-free if they are struggling because of COVID-19. 

If you are in this situation, it’s a good idea to contact your bank and ask them to put this facility in place. If your account allows you to be overdrawn by less than £500, then you can ask your bank to make your whole authorised overdraft interest-free for 3 months.

If your overdraft facility is worth more than £500, you may also be able to ask for a lower interest rate. But this can only happen if it’s clear that you’re having problems paying back your overdraft.

You have until 31 October 2020 to get in touch with your bank to make these requests.

If you've already asked for help, you can ask for it to be extended. If you already have an interest-free overdraft and are still struggling when it's due to end, you can ask your bank to extend it for a further three months. 

Some banks will have already introduced help that is more generous than the minimum requirements set out by the FCA to support vulnerable customers, so do get in touch with your bank.

What kind of help is your bank offering?

If you’re experiencing financial difficulties as a result of Coronavirus, here is the help that the larger high street banks offer: 

First direct

If you’re struggling you can receive the £500 0% interest rate buffer on your existing overdraft and 19.9% EAR, as long as you ask for it before 29 August. 

Customers facing financial difficulty have been able to make use of the £500 0% buffer since April. If you’ve been able to benefit from this buffer but need to extend it, you can do so as long as you apply before 31 October 2020.

Otherwise, from 30 August 2020 customers can be offered a £250 0% overdraft budder, and a 39.9% EAR. 

More details on First Direct’s Coronavirus overdraft policies here.

Halifax

Between 9 April 2020 and 9 July 2020 current account customers could take advantage of the 3-month £500 0% buffer.

From 10 July 2020 you’ll start to pay interest whenever you make use of your arranged overdraft, unless your current account has a standard interest-free amount and your overdrawn spending does not go above it.  

If you’re struggling you can ask to have the £500 interest-free buffer extended for a further 3 months, if the account is your ‘primary’ account. This means it has to be the account where your main source of income is paid in. 

You’ll need to apply online before 31 October.

More details on Halifax’s coronavirus overdraft policy.

Otherwise, the standard EAR which applies to overdrafts from 10 July for most Halifax current accounts is 39.9%.

HSBC

All HSBC current account customers receive the £500 0% buffer until 29 August 2020.

If you’re having financial difficulties due to COVID-19 then you can apply between 30 August 2020 and 31 October 2020 for that buffer to be extended, alongside a standard 19.9 EAR on all overdrawn spending above £500.

Until 29 August 2020, HSBC Premier Account customers will only face an 11.9% EAR on any overdraft above £500, while HSBC Jade Account customers will only pay 9.9% EAR on overdrawn spending. 

From 30 August 2020, HSBC’s standard overdraft interest rate will kick in at 39.9% EAR for most current account customers. But you’ll still be able to take advantage of a £25 0% buffer.

HSBC Premier Account customers will continue receiving the £500 0% buffer, while HSBC Jade Account customers can spend up to £1,000 from their overdraft before the 39.9% interest rate kicks in.  

Full details on HSBC coronavirus overdraft terms and support

Lloyds 

Once the £500 0% buffer period ended on 9 July, Lloyds reintroduced interest charges on all personal overdrafts. Most Lloyds current accounts continue to offer a £50 0% interest buffer.

Standard interest rates vary between 27.5% and 49.9% depending on the type of current account you hold.

If you’re struggling you can apply online before 31 October 2020 for the £500 0% buffer to be extended for 3 months. Lloyds have also said they may be able to offer vulnerable customers additional overdraft help. 

If this sounds like you, it may be a good idea to get in touch with Lloyds

Full details on Lloyds overdraft policies and help for customers affected by Coronavirus.

Natwest and Royal Bank of Scotland

- For all: Interest rates capped at 19.89% till 7 Aug.

- If struggling: Apply online before 31 Oct for a £500 0% buffer.

- Standard interest rate: From 8 Aug, 19.49% to 39.49% depending on account.

Both banks have capped interest rates on overdrafts at 19.89% EAR until 7 August 2020.

If you’ve been financially impacted by coronavirus, you’ll have until 31 October 2020 to request a £500 interest-free buffer on your existing arranged overdraft for 3 months. The value of the interest-free buffer will be lower than £500 if your existing limit is lower. 

From 8 August 2020, the banks will re-introduce standard overdraft rates of between £19.49% and 39.49% depending on your account.

Full details on Natwest overdraft policies and coronavirus help.

Full details on RBS overdraft policies and coronavirus help.

Santander

All Santander current account customers can use £500 of their arranged overdrafts interest-free until 23 July 2020, if their existing overdraft limit is above £500.

A cap of 19.9% EAR has been placed on all overdrawn spending above £500 until the same date.

Customers who are struggling can apply online before 31 October to extend the £500 0% buffer and 19.9% EAR for a further three months.

Otherwise, Santander’s standard interest rate on personal overdrafts will shoot up to 39.94% EAR on 24 July 2020.

Full details on Santander’s overdraft terms and coronavirus support.