HSBC bank is set to impose an overdraft rate of nearly 40 percent on all of its customers in the UK from March 2020, as much as quadrupling the interest paid by some customers.
HSBC says that seven in 10 overdraft users will be better off or the same as a result of the changes, but has not provided further detail on the numbers.
National Sportslink gathered that the move is in response to new industry-wide rules designed to simplify overdraft fees and put an end to rip-off charges, but while some customers will benefit, many will pay significantly more than they do currently.
The announcement comes at a time when Backend Editorhen households are stretching their budgets to cover Christmas spending and follows a similar move from Nationwide Building Society.
The bank currently charges rates of between 9.9 percent and 19.9 percent on overdraft debt but also imposes other fixed daily fees which can leave a minority of customers paying large amounts.
HSBC will also scrap a £5 fee for entering an unarranged overdraft and introduce a £25 interest-free buffer on some accounts. 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.”
It could be recalled that in June, the Financial Conduct Authority (FCA) announced a ban on daily and monthly overdraft fees and told banks to charge a single interest rate from April next year, making overdraft debt more easily comparable with credit cards, loans, and other options.
Nationwide hiked its interest rate to 39.9 percent in July with other high street lenders expected to follow suit.
The regulator claims its new rules will fix the “dysfunctional” overdraft market which traps some customers into effectively paying higher rates than payday loans.
More than half of banks’ unarranged overdraft fees came from just 1.5 percent of customers in 2016. Under the new system, unarranged and arranged overdraft costs must now be the same.
However, banks have responded by sharply increasing interest rates for authorized overdrafts, leaving millions of customers out of pocket.
Helen Saxon, the banking editor at MoneySavingExpert.com, said: “With both of the first banks to announce changes moving overdraft interest rates to around 40 per cent, we have to wonder if this is the new normal.”
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.
“We have already seen Nationwide upping its charges and these moves have been in response to the FCA’s ruling to ban fixed fees from April 2020.”
She continued: “This shake-up is designed to make things fairer and more transparent to consumers.
“Borrowers would be wise to scrutinize any changes to their current account and look to switch elsewhere if they find that the account has lost its shine.”
Last month, HSBC agreed to refund £8m to 115,000 customers who were not sent a text message when they entered an unarranged overdraft.