The following is taken from a full article published by CopperPot Credit Union. Read the full article here.
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).