Overdrafts can be a useful facility to help fund unexpected bills, however it’s important to be aware of how much you could be charged to use it, especially with recent changes.
So what’s changed?
From April this year, the FCA announced that banks would be required to price overdrafts using a single annual interest rate, rather than charging fees. The aim was to make it easier for customers to compare rates. According to BBC News; some banks planned to increase the interest rates on their overdrafts to almost 40%.
Due to the covid-19 pandemic, the FCA enforced temporary rules in April, which ensured that no one was required to pay more for overdraft usage than they did before the changes took place for at least three months.
To adhere to temporary rules, all banks were required to charge interest rates as opposed to fees. Some banks offered reduced interest rates for three months, whereas others offered free overdraft usage up to £500, with anything over this amount being charged the increased rate (between 35% and 39.9% interest).
From the 9th July, the FCA’s temporary rules for banks were withdrawn and some banks are back to charging between 35% and 39.9% for overdraft usage. If you like the option of having access to flexible credit in case of unexpected expenses, now might be a good time to check how much you could be charged if you were to go into your overdraft and have a look at other options.
We have a product which may help you
Many of our members use our Revolving Credit facility as an alternative to an overdraft or credit card. Revolving Credit is a flexible product which gives you a credit limit, allowing you to withdraw funds as and when you require them. You are only charged interest on the amount you withdraw and can overpay as frequently as you like, at no cost.
If you find yourself short of cash or facing an unexpected bill, you can simply withdraw funds from your Revolving Credit. It has a simple monthly repayment structure and you can apply to have a pre-approved limit between £500 and £5,000, at a fixed interest rate of 12.68% APR.