Overdraft cancelled - anyone experienced this?

[Worcswarrior]

Hi,

Has anyone had their HSBC overdraft cancelled ir reduced? Periodically they write to me telling me that they might cancel my overdraft if I continue up use it. I understand that they have the right to do this. Does anyone have any experience of this?

Assuming you use it (not sure due to the typo in your post) you should be aware that it's probably the most expensive legal way to borrow money and it's viewed negatively by lenders.

Conversely, if you're into it regularly, but coming out of it when you get paid, you could completely avoid going into overdraft, for free and show yourself as financially responsible by putting all your day to day spending like groceries, petrol/travel and anything else you buy on a credit card that's paid off in full every month. This delays the money coming out of your account by 3 to 7 weeks which might be enough to get you out of overdraft.

Moneysavingexpert has detailed advice on getting out of overdraft (useful to have the facility but not use it in case your salary or other income is delayed or you get tripped up by direct debits but it's not really an appropriate way to regularly borrow money or manage cash flow).

https://blog.moneysavingexpert.com/2018/11/martin-lewis--are-you-an-overdraft-prisoner--how-to-escape-it/

But depending on your wider finances it could be that you can improve things by having a month or two of really frugal spending where you spend as little as possible and only buy basic essential groceries, use up any extra food, toiletries etc that you have on stock, that sort of thing.

Plus reviewing your finances to see if you can reduce a few costs like broadband, mobiles etc and cancel any unused subscriptions.

But if your review shows you that you can't afford your day to day expenses and any debts eg if you also have credit card debt then this is the trigger for seeking a more formal solution, which MSE can also point you in the right direction of.

DH opened an account with First Direct a while ago to take advantage of the £175 they were offering.

Never uses the account and got a letter saying they were removing his overdraft. They are part of HSBC group.

Coming from another side: we've never used our joint HSBC overdraft and they took it away for no apparent reason as well.

So nothing has changed on your OD at the moment?

Banking Regulations say that all ODs need to be periodically reviewed. It reads as if this is what is happening now.

what are your concerns about it possibly being removed?

www.handbook.fca.org.uk/handbook/CONC/5D/2.html

Agree with the pp who advises getting to a situation where you no longer use the overdraft. How much do you go overdrawn each month?
An overdraft can be removed at anytime so should never be relied on.

I think any financial institution can change their lending terms and give you notice. For example, I took out a Next store card to get a discount off a purchase of about £70. They wrote to say 'hello, here's a £4k credit limit for you'.

I've not used the card since (and have actually cut it up and thrown it away), but they wrote last week, apologising, that my limit is now £2k. And that's ridiculous anyway because I'm on disability benefits.

So, if you're not using your OD, that's probably why you've had that notification.

I never used my Barclays overdraft so they took it away.

You should cancel the card not just cut it up as having open, unused credit can negatively affect your credit score which is probably why they lowered your limit too.

Yes it’s common for banks to either remove a never used overdraft,, or to remove an overdraft if you’re essentially living in it. They’ll gradually reduce it until it’s paid off and then remove it.

They’re perfectly entitled to do that. Too many people view an overdraft as being their money. It’s not, it’s their debt.

An overdraft is the worst kind of borrowing as the rates are astronomical and there’s no commitment to pay it back..

Happened to me when I didn't use the overdraft facility for a few months. Mine was a £500 amount and useful in times of unexpected financial issues (such as when my boiler broke!)

However, they cancelled it without even asking if I no longer needed it, which pissed me off! Just because I'd had an 'ok' few months didn't mean that the security of that emergency buffer was no longer needed. It's not like an unused overdraft facility was causing them any issues! I rarely needed it, but it was like a safety net - there in case I fell!

They refused to reinstate it so I moved banks (after 30 years of being a customer). Not great on customer service really are they 🤷‍♀️

I used to basically live in my overdraft in my 20s - my salary paid it off each month and I used it again. Terrible idea obviously but great for the bank! They increased my overdraft without being asked on a regular basis. I stopped doing that in my 30s and eventually stopped going overdrawn at all. Eventually after about 15 years of not once going overdrawn I got a letter saying that my £6k agreed overdraft had been reduced to £250 🤣

I liked knowing I had access to borrowing the money in case of emergency in theory, but really it's better not to have it I suspect!

I've banked with Barclays for 50 years and they continually raised my (rarely used) overdraft to £5k. I got a letter last year saying the whole amount was being cancelled with immediate effect. It was handy knowing it was there if I was abroad as a back up in an emergency so I asked in branch - they removed it because their financial liability for fraudulent activity on accounts now includes overdrafts and it was a financial risk they'd decided to stop taking. Made sense.

My overdraft was cancelled because I never used it. When I contacted them they said you can just ring us and we would reinstate it if you needed it as you are a good credit risk.

My Mum used her entire overdraft every single month. That meant she had a debt she was never paying back, it doesn't matter what fees she was paying she wasn't servicing the debt. The bank didn't like that and told her that if she didn't start reducing her use of the overdraft every month they would cancel it.

If I were you I would try not to spend every penny because you do have a debt that needs paying. They can and will remove the whole thing which would leave you short by the entire overdraft. Start working out how to pay it back and definitely look at Martin Lewis/Moneysavingexpert for advice.

Banks cancel overdrafts that are never used because they have to reflect the facility on their balance sheets (because they don't know that you won't use it all tomorrow) and that's not good for to them.

They are also at risk of being accused of irresponsible lending if they let you be in overdraft a lot because of the cost, which is why they encourage those who are reliant on them to find a solution to get out of them sooner rather than later.

Either way, an overdraft isn't suitable for more than very occasional short term borrowing. Anyone who wants 'to keep a buffer' would be far better getting a credit card with at least a £2/3k limit and preferably keep it active by putting some of their normal spending on it (eg fuel/groceries) and paying it off in full by direct debit. Just a few times a year will do it if you don't want to go the cashback route by making a little extra money by putting all your normal spending through a card for cashback.

Then if you need a new boiler or whatever, you can use your card and pay it off over a couple of pay days interest free. Or you can transfer the balance to an interest free card, that you can almost certainly get because you've put the groundwork in to achieve a good credit history, and pay it off over a longer period. Plus you have extra protection if the boiler breaks in the first few years and the installer isn't being co-operative or has disappeared. And there's other advantages of having an active credit card like easier and likely cheaper to hire a car.

When I was badly in debt I used my overdraft for living. The bank cancelled it and turned it into a Lian which was at a much better interest rate, it's a terrible way to borrow money