Lloyds Banking Group to revamp overdraft fees

Lloyds Banking Group is changing the way it charges customers for using planned and unplanned overdrafts. However, not everyone is going to benefit.

Lloyds Banking Group is overhauling its overdraft charges for millions of customers from November.

The group – which includes Lloyds Bank, Halifax and Bank of Scotland – will scrap fees for unauthorised borrowing and missed payments and introduce a new simpler flat rate tariff for arranged overdrafts.

While this is welcome news for most of the group’s 22 million current account customers, the changes will mean over two million who are already struggling with overdraft debt may actually have to pay more under the new system.

Here’s what you need to know.

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What’s changing?

From November 2017 Lloyds Bank, Halifax and Bank of Scotland customers will be charged a flat rate of 1p per day for every £7 borrowed on arranged overdrafts.

This will be charged at the end of each day rather than once a month.

Though this sounds relatively cheap, if you were overdrawn for a year it effectively amounts to an EAR of 52% (£3.65 annual cost for £7 debt).

However, there will be no fees or charges for unarranged borrowing or missed payments for all even those with basic bank accounts.

At the same time, some of the fee-free buffers on other accounts will be removed.

The £25 fee-free cushion on Lloyds Bank and Bank of Scotland Classic accounts as well as the £50 safeguard on the Halifax Reward account will be scrapped and replaced with the £7 buffer, after which point the penalties will kick in.

However, the fee-free overdrafts on student accounts, Club Lloyds accounts and packaged accounts like the Halifax Ultimate Reward and the Lloyds Bank Platinum Account will remain unchanged.

All customers who have provided their mobile number will get sent text alerts when their balances are low.

Here’s what the changes will mean for the Halifax Reward, Club Lloyds and Bank of Scotland Classic accounts.

Winners and losers

How you will be affected depends on the current account you have, how much you go overdrawn by and for how long.

Generally those who use an unarranged overdraft will benefit the most as there will no longer be any hefty charges building up on the debt, just a single flat rate fee.

Those that use an unarranged overdraft of £500 or less should also find they pay less under the new tariff.

However, those with bigger debts of £1,000 or more will likely pay more under the new scheme, meaning those already struggling will be hammered further.

Here’s what you’ll pay on the Halifax Reward account on a planned overdraft for 10 days:

The average balance for a Lloyds Banking Group customer using their overdraft is around £450 a month.

It claims more than nine in 10 of its 22 million current account customers at Lloyds Bank, Bank of Scotland and Halifax will be better off or unaffected by the changes.

However, that still leaves over two million that could lose out under the changes.

What about other banks?

The Competition and Markets Authority (CMA) ruled last year that banks need to introduce a maximum monthly charge for unarranged overdrafts by September 2017 and as a result many banks are making changes to their charges.

Lloyds is due to introduce a £95 cap in August, but November’s changes will replace this.

RBS and NatWest are set to introduce a £80 maximum charge by 24 July.

While TSB will set a cap of £80 for unplanned overdraft and missed payment interest and fees from 2 August.

Cheaper borrowing 

If you frequently find yourself in the red check out some of the best current accounts for those who go overdrawn.

Alternatively check out: How to get an interest-free loan.

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