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money.co.uk comment: new rules for overdrafts

Written by Salman Haqqi, Senior Personal Finance Writer

18 December 2019

As the FCA reveals its new rules for overdrafts, money.co.uk comments on how they will benefit people across the UK.

A radical overhaul of the overdraft market to make it fairer and more transparent, was something that was long overdue.

And consumers will welcome these new pricing rules, that will come into force next April, to simplify an overcomplicated fee structure, which only serve to line the banks' pockets, leaving customers confused and frustrated.

The FCA correctly pointed out that a disproportionately high number of vulnerable customers are going into unarranged overdraft and being hit by excessively high fees.

The overdraft market needed shaking-up and these reforms, to ban daily fixed fees, and stop firms charging higher fees for unauthorised overdrafts, will go some way to creating a system that is fair to all and easier to understand.

Having a single interest rate covering unarranged and arranged overdrafts should avoid confusion amongst consumers. By not including overdrafts within available balances, people will now have a clearer view of their finances, helping them take better control of their money

The one disappointment is that a number of banks have already hiked their overdraft fees in advance of the FCA proposals being enforced, and there's every chance that other banks will follow suit.

The FCA said it had anticipated that banks would do this, and argues that consumers will still be better off, because a simpler fee structure will increase competition and put a brake on further hikes.

However, it's not clear how banks are going to cover the recurring lost revenue from unarranged overdrafts in the longer-term, and if they can't touch overdraft fees they could decide to increase charges on other products.

In the meantime, in light of the FCA ban, we would advise consumers to familiarise themselves with their bank's overdraft fees, and then compare with the wider market.

If you are someone who is regularly going into overdraft during or at the end of the month, and your bank's overdraft fees are not the most competitive in the market, then it might be time to switch banks, to one that offers more favourable overdraft rates.

Check our our top tips for paying off your overdraft to save you money here

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Salman Haqqi

Salman Haqqi, Senior Personal Finance Writer

Salman Haqqi spent 10 years as a journalist reporting in several countries around the world. He left the world of journalism to pursue his passion for personal finance.

Read Salman Haqqi's articles and guides
Joel Kempson

Joel Kempson, Personal Finance Writer

Joel Kempson devotes his time to helping people navigate the world of personal finance and make informed decisions about their money. He spent his early career writing about TV, movies, comic books and rock music.

Read Joel Kempson's articles and guides