HSBC to hike overdraft charges from next year
All customers will be charged a rate of 39.9%, a steep rise from the current rates of 9.9% to 19.9%.
The new rate will apply whether they go into their overdraft with or without permission.
To offer customers some leeway should they go slightly overdrawn, the bank is introducing an interest free buffer of £25, which will apply to ‘Bank Account’ and ‘Advance’ accounts. However, most overdraft customers are expected to be worse off under the new rules.
The changes follow a similar move by Nationwide earlier this year.
The current account providers are responding to new rules from the Financial Conduct Authority (FCA) that apply to all banks and building societies.
From April 2020, they will be required to stop charging customers higher prices for unarranged overdrafts in comparison to arranged overdrafts and they will not be allowed to charge fixed daily or monthly overdraft fees.
HSBC will remove the £5 daily fee for going into an unarranged overdraft and won’t charge customers more than £20 a month for going into an unarranged overdraft, down from the current cap of £80.
As an example, a customer overdrawn by £200 in an unarranged overdraft for 15 days would be charged £2.78 from March, compared with £80 under the current structure.
Customers will receive text messages informing them they have gone into their overdraft.
39.9% – the new normal?
Andrew Hagger, personal finance expert at Moneycomms, said: “As feared, it appears that HSBC is following the earlier move by Nationwide Building Society and hiking overdraft rates to 39.9% EAR from next March.
“Paying almost 40% for agreed overdrafts looks like becoming the norm even if you have a top-notch credit record – double the rate on credit cards – surely this isn’t the outcome the regulator was expecting?
“Some of the big banks still haven’t shown their hands but the early signs are that those using agreed overdrafts will be paying a much higher price and absorbing the costs the banks used to impose on unauthorised overdraft borrowing.”
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine. It only takes seven days to switch using the current account switcher service.
“There are a handful of current accounts out there which offer a fair overdraft tariff, such as with first direct and Starling Bank.”
Madhu Kejriwal, head of lending and payments at HSBC UK, said: “By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions.”