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Starling Bank offers customers interest-free overdrafts

Joanna Faith
Written By:
Joanna Faith

Starling Bank is waiving overdraft charges for customers struggling during the coronavirus crisis.

However, unlike many other banks the challenger is making customers apply for the three-month interest holiday rather than applying it automatically.

The challenger said customers can apply from today (1 April) and successful applicants will not have to pay any arranged overdraft interest for 90 days from the day their application is accepted. The bank will contact customers after 60 days to remind them when interest charges will resume.

Starling said customers can apply for an interest holiday, if they:

  • have suffered a drop in income since 10 March 2020 due to coronavirus. For example, work has dried up or they can’t work due to self-isolation or new caring responsibilities
  • have already have an arranged overdraft with Starling

For customers with no arranged overdraft, Starling is removing the interest rate and the maximum monthly charge, currently capped at £2 per month, and setting it at £0, commencing from today, so customers will not be charged for accidentally slipping into an unarranged overdraft. This arrangement will be in place until further notice.

Helen Bierton, chief banking officer at Starling, said: “We wanted to find a sustainable solution to support our customers who may be facing temporary financial difficulties related to the coronavirus emergency and to tide them over for three months.”

Starling has overhauled its usual overdraft charges in response to new rules from the Financial Conduct Authority (FCA) aimed at making overdraft charges clearer and easier to compare.

It has introduced a ‘risk-based pricing’ model for overdrafts, meaning customers going into an overdraft would face a 15% EAR, 25% EAR or 35% EAR interest rate depending on their credit scores.

Previously, it charged a single flat interest rate on overdrafts of 15% EAR with a £2 maximum monthly interest rate charge on unauthorised overdrafts.

The bank is still accepting new overdraft applications.

What other banks are doing for their customers

Starling is the latest bank to introduce emergency overdraft measures to help customers during the coronavirus pandemic.

Barclays has scrapped overdraft charges until the end of April, while Nationwide said it would not charge overdraft interest from 20 April until 1 July for customers financially impacted by coronavirus.

Metro Bank has waived overdraft charges until 30 June.

HSBC has increased the interest free buffer on overdrafts from £25 to £300 for a three-month period and Lloyds, Halifax and Bank of Scotland is offering customers a £300 interest-free overdraft buffer for three months from 6 April.

Santander has introduced a £350 interest free overdraft buffer for three months from 6 April and Virgin Money, Clydesdale Bank, Yorkshire Bank are offering a £500 buffer from 1 April.

First Direct and M&S offer a £250 buffer – but they did this even before the crisis.