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HSBC to bring in single overdraft rate of 40% | HSBC to bring in single overdraft rate of 40% |
(32 minutes later) | |
HSBC is to bring in a single overdraft rate of 39.9% for UK customers from March 2020, as much as quadrupling the rate it charges some customers. | HSBC is to bring in a single overdraft rate of 39.9% for UK customers from March 2020, as much as quadrupling the rate it charges some customers. |
However, the bank is removing a £5 daily fee for going into an unarranged overdraft and introducing an interest-free £25 buffer on some accounts. | However, the bank is removing a £5 daily fee for going into an unarranged overdraft and introducing an interest-free £25 buffer on some accounts. |
It follows a similar move from Nationwide Building Society in July. | It follows a similar move from Nationwide Building Society in July. |
It comes in response to tough new borrowing rules from regulators designed to protect consumers. | It comes in response to tough new borrowing rules from regulators designed to protect consumers. |
But one analyst warned that steep overdraft rates could now become the "new normal". | But one analyst warned that steep overdraft rates could now become the "new normal". |
HSBC UK currently charges rates of 9.9% to 19.9% on arranged overdrafts, but the higher rate will be applied across its whole range of accounts except for its student bank account. | |
The £25 buffer will apply to Bank Accounts and Advance Bank Accounts, providing leeway for those going slightly overdrawn. | The £25 buffer will apply to Bank Accounts and Advance Bank Accounts, providing leeway for those going slightly overdrawn. |
HSBC said that as a result of this and the removal of the £5 daily fee for unarranged overdrafts, seven in 10 who use an overdraft would be better off or the same as a result of the changes. | HSBC said that as a result of this and the removal of the £5 daily fee for unarranged overdrafts, seven in 10 who use an overdraft would be better off or the same as a result of the changes. |
But that suggests around a third could end up worse off. The bank has eight to nine million current account holders in the UK. | |
Madhu Kejriwal, HSBC UK's head of lending and payments, said: "By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions." | Madhu Kejriwal, HSBC UK's head of lending and payments, said: "By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions." |
The move comes in response to Financial Conduct Authority's plans to shake up the "dysfunctional" overdraft market - including stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts. | The move comes in response to Financial Conduct Authority's plans to shake up the "dysfunctional" overdraft market - including stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts. |
The new rules, which come into force next April, will require providers to charge a simple annual interest rate on all overdrafts and get rid of fixed fees. | The new rules, which come into force next April, will require providers to charge a simple annual interest rate on all overdrafts and get rid of fixed fees. |
But there have been concerns that banks will hike authorised overdraft charges to claw back some revenue lost from unauthorised overdraft fees. | But there have been concerns that banks will hike authorised overdraft charges to claw back some revenue lost from unauthorised overdraft fees. |
In July, Nationwide also unveiled a new single rate of 39.9% across its adult current account range. Its changes came into force in November. | In July, Nationwide also unveiled a new single rate of 39.9% across its adult current account range. Its changes came into force in November. |
Helen Saxon, banking editor at MoneySavingExpert.com, said: "With both of the first banks to announce changes moving overdraft interest rates to around 40%, we have to wonder if this is the new normal." | Helen Saxon, banking editor at MoneySavingExpert.com, said: "With both of the first banks to announce changes moving overdraft interest rates to around 40%, we have to wonder if this is the new normal." |
The FCA has acknowledged banks may look to increase their arranged overdraft prices as a result of the new rules. | The FCA has acknowledged banks may look to increase their arranged overdraft prices as a result of the new rules. |
But it argues the net effect will still be better for consumers - and increased competition between providers as a result of the changes will constrain any price increases. | But it argues the net effect will still be better for consumers - and increased competition between providers as a result of the changes will constrain any price increases. |
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "It's disappointing to see such a hike in overdraft charges but there may be more brands coming out in the coming weeks to announce changes too. | Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "It's disappointing to see such a hike in overdraft charges but there may be more brands coming out in the coming weeks to announce changes too. |
"This shake-up is designed to make things fairer and more transparent to consumers. | "This shake-up is designed to make things fairer and more transparent to consumers. |
"Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine." | "Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine." |