Banks raising overdraft interest rates

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I'd read about this in the news relating to a couple of other banks. Yesterday I received an email from my current account bank (First Direct) about overdraft charges. It was only quite some way down the email and having to expand a little box that I found the information that from March their overdraft EAR is going up from 15% to 40%.

I can't believe they can do this a) at such short notice, and b) without making it the principal point of a communication of customers rather than buried towards the end of an email.

I'm struggling financially at the moment and the news that I need to somehow clear or massively reduce my overdraft within four months is a real blow.

I know no one should be living in their overdraft but things didn't go to plan.

Anyway, I'm half posting this for a winge but actually mostly posting it in case anyone else has missed this information.

Hmm I'm sure I didn't ask for voting! I'm in chat not AIBU . Ignore that.

It follows an FCA ruling that banks have to charge an interest rate for overdrafts rather than daily fees, and that the interest rate must be the same for arranged and unarranged overdrafts. This is so people can easily compare different banks' offerings. Some accounts that charged fees were actually charging the equivalent of more than 40% interest.

The banks will need to maintain the income stream they had from charging overdraft fees. They'll also want to pre-empt people claiming back fees on the back of the FCA ruling by making sure they're charged a similar amount in interest as they would have paid in fees.

Not saying any of that is a good thing, but that's why it's happening.

No clue whether or not they can do this but speak to your bank it they can offer you a loan instead for you to pay back - you may get 5-7% rather than 40 x

Thanks for your responses. At the moment I wouldn’t pass affordability checks for a loan so, even though that would be much better financially and is a really good idea, I suspect it’s not an option.

Depending on the size of your overdraft and how long you spend in it each month you may find you don’t actually pay a whole heap more.

Are you paying your overdraft off each month but then going back into it, or are you in it all of the time?

I have been trying to reduce the amount of time we're in the overdraft each month by loading all our money into that account and just taking out what we need, our wages and cb go into different accounts so I have to keep checking, this will hopefully reduce any fees we need to pay

Even if you can chip away at it by £50 a month that’s £600 in a year. Good luck!

I thought it was quite prominent in the email from first direct as I only skimmed the top and deleted it but saw it.
Seesms a big rise but I understand they have to change practice.

How strange. I’ve just revisited the email and the first mention of an increase in interest rate in the email sent to me is in the last third of the email and only if you click on a drop down box.

I live in my overdraft. I’m lucky to get to £0 each month let alone be in credit. I could chip away £50 per month but a table given by first direct suggests that my interest charges are going to be £60 per month (currently around £18) so I’m not even going to tread water doing that.

Interesting. My email is entitled "important information about my overdraft" and is all about the topic and the various fees and charges.

I don't use an overdraft although I think I technically have one.