Martin Lewis Issues Warning For Those Currently Overdrawn
Martin Lewis has issued a warning for people who are currently overdrawn (so most of us then, I'd imagine), as overdraft rates are changing - with per day fees being replaced by a single, simple interest rate.
Speaking on The Martin Lewis Money Show last night, Lewis discussed new rules that have been brought in by the Financial Conduct Authority to help make overdrafts more transparent, including the 'new virtually standard 40 percent interest on overdrafts'.
The new changes mean that all banks and building societies must scrap unarranged overdraft fees and charge customers a simple interest rate for arranged overdrafts, and this must be in place by April 2020.
8pm tonight ITV... my show is on - all about the new virtually standard 40% interest on overdrafts; over doubel a high street credit card, and what you can do to beat it.
Plus do you know your return rights on goods bought online and instore?
Do watch if you can. #martinlewis
- Martin Lewis (@MartinSLewis) January 13, 2020
Lewis said: "The problem with overdrafts is that they're a stealth debt.
"You don't apply for them, you just end up in them.
"And right now everyone with a bank account needs to understand what's changing - good and bad.
"Back in 2005, banks would charge £35 a pop for going overdrawn. It would be £35 per transaction, i.e if you made seven transactions, you'd be charged seven times.
"The system was designed to entrap customers."
He continued: "Last July, the regulator said that from April 2020, banks will no longer be able to charge you a fine for going over your overdraft limit.
"That means that while they can still charge you what it costs them, they won't be able to impose daily penalty charges.
"It took 10 years, but we got a win."
Lewis said the change would be a 'big eye opener', as banks will have to charge interest rates rather than daily charges for their overdrafts.
He argued this would make it easier to compare what's on the market, but added: "But the changes were introduced to make the market more competitive - which hasn't worked. They're all charging the same at 39.9 percent.
"The straight fact is, if you're overdrawn in future, you're going to pay 40 percent interest on your overdraft."
Basically as a result of the changes, some current account providers like HSBC, First Direct, Nationwide and M&S Bank have started charging a flat interest rate of 39.9 percent EAR for all of their arranged overdrafts, with many more expected to follow suit.
A post on MoneySavingExpert.com advised: "In light of this it's even more reason to look at your overdraft as a debt, and an expensive one at that.
"At the same time, people who currently pay fees for breaching their overdraft limit - otherwise known as going into your 'unarranged overdraft' - will pay less, as punishing daily fees for this have been scrapped.
"However, some banks are actually extending their interest-free arranged overdraft facility or offering smaller interest-free 'buffers'. While this will be more expensive for some, it could work out much cheaper for others."
Featured Image Credit: PA