Overdafts - Interest rates due to rise significantly

[BernadetteRostankowskiWolowitz]

This is sending me into a blind panic truth be told. 40% interest on arranged overdrafts starting April.

I can't be the only MNer who uses their overdraft often every now and again?

And if I go into it by, say 300 quid two days before payday, then the interest will be 120 quid?! Surely people who regularly use their arranged overdraft will just spiral into debt?!

[nocluewhattodoo]

I will be totally fucked, I've very rarely been out of my overdraft since getting it while at university. There's no way I can afford to pay it all off before April. I'm honestly terrified at how quickly it will spiral totally out of control with 40% interest. Just more punishment for the poor.

[BernadetteRostankowskiWolowitz]

It just doesn't seem long enough notice to make any reasonable steps to reduce it.

[Fairylea]

I would start looking at credit cards that offer 0% interest rates on money transfers, then use that to transfer the debt to the card and pay it off that way - if you can, obviously not everyone with bad or poor credit can do that but it’s a good option for those that can. Virgin and Barclaycard usually offer good money transfer rates to bank accounts.

[VivaLeBeaver]

Is this all banks? I'm amazed it's allowed.

[TheMemoryLingers]

40% is an annual equivalent rate so if you are £300 overdrawn for two days, the charge will be about 65p. If you were overdrawn by £300 for year, that's when you'd pay a total of £120.

This change was required by the FCA to make overdrafts easily comparable between banks, rather than banks disguising high costs by having monthly or daily fixed charges. All banks must now have a single interest rate for overdrafts and no differentiation between arranged and unarranged overdraft rates.

[Mooserp]

It's not an instant 40% charge!

[FairyBatman]

I obviously haven’t seen the documents but I doubt it’s 40% a day. Is it 40%apr?

[VivaLeBeaver]

Oh that sounds more reasonable.

[TeddyIsaHe]

I’ve looked into it and my interest rates and charges will actually be lower each month than they are now, because TSB is reducing the charge of being in your overdraft over £35.

[BernadetteRostankowskiWolowitz]

Oh god it's annual? Thank bloody god!!! I don't know why I just automatically assumed it was monthly.

[Oblomov20]

I did realise but it's something I need to watch.

[TheMemoryLingers]

Here is the FCA's press release:

www.fca.org.uk/news/press-releases/fca-confirms-biggest-shake-up-overdraft-market

[HeyPesto55]

And what's more, if you are what the FCA terms a 'repeat user' then your bank is now obligated to identify you and let you know. So overdraft charges are becoming a whole lot more transparent.

Banks are also now encouraged to offer you more varied products / options to get you out of your overdraft, i.e. interest waiving or a limit reduction plan.

So if you are worried, it's worth calling up and checking how they can help you...