The regulator, the FCA, imposed changes in the hope to make things fairer and easier for customers; while it’s worked in some ways, it’s failed to boost competition and will see many overdraft prisoners pay more. Everyone who ever dips into their overdraft needs to take action.

Why have these changes happened?

The regulator the Financial Conduct Authority (FCA) ruled that from 6 April 2020 current account providers must…

• End extra charges for busting your arranged overdraft.

• All overdrafts to have a single interest rate. This has made comparing overdrafts easier, but the problem is they’re virtually the same hideously high rate – which was unintended.

So much so, after I and many others complained, the FCA has written to major banks slapping them on the wrists by asking for evidence of how they’ve arrived at charging such high interest rates, and it’s gone even further to say that banks must help those most vulnerable customers who’ll be hit hardest by the change in overdraft costs. 

Rates are high, but not everyone will pay more

Generally, if you, only go into you arranged overdraft a little, and not for long, you’ll win. For example, currently go £20 overdrawn with NatWest for one day, and you pay £6.01, under the new system it’ll just be a few pence. However, for those who are constantly stuck in their authorised overdraft by a decent whack, the increase could be huge.

Take someone overdrawn by £2,000, their costs more than triple, from around £180/year to £680/year. Locking many in as long-term overdraft prisoners.

In fact, this is worse than most credit cards, and threatens to turn the old financial logic on its head.

Many use their bank account to pay off credit cards, yet perversely as typical credit cards only cost 19 percent annual interest, and overdrafts are 40 percent, if you’ve both debts you’d be better to pay the minimum on your credit card and focus on reducing the overdraft first. Once that’s gone try to clear the credit card.

• If these charges put you in financial hardship complain. The FCA’s letter told banks that they must help those struggling – suggesting to reduce or waive interest, allow customers to continue using their overdraft at current rates, or agree repayment programmes. This means, as the regulator has said it, it’s arguably now standard industry practice. That’s crucial because if you complain and the bank does nothing, you can go to the free www.financial-ombudsman.org.uk for a ruling. And it looks at both the law and standard industry practice.

• Seek debt counselling help. If all else fails, talk to a free non-profit debt counselling agency like www.citizensadvice.org.uk, www.nationaldebtline.org, or www.stepchange.org; banks take them more seriously.

Martin Lewis is the Founder of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip