Fixed daily and monthly overdraft fees to be banned - MSE News

Former_MSE_Naomi

Fixed daily and monthly overdraft fees will be banned and replaced with a single interest rate from next April, the financial regulator has announced today...

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'Fixed daily and monthly overdraft fees to be banned'

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Paul_Herring

Another nail for the coffin for fee-free banking...

JuicyJesus

Excellent news. These fees were both unfair and ridiculously expensive compared to a percentage interest rate, significantly punishing people who use an overdraft moderately in favour of people who are banging up against the top of theirs every month. An overdraft that cost me pennies (while my partner was waiting for some invoices to be paid) would have cost me £20 if I had a fixed fee overdraft. And the absurdly complex fee structure that some have is ridiculous (7p per day per £100 or something, that's a nightmare to work out...)

Paul_Herring wrote: »

Another nail for the coffin for fee-free banking...

Maybe banking shouldn't be fee-free.

But there is a wider point here: every other avenue for banks making money (or even making their costs back) is being closed off. It just so happens that this is one of the revenue streams that actually should be closed off, because it's detrimental to consumers.

I hope that going forward there's something akin to the FlexAccount/FlexDirect model that Nationwide have. You pay less in fees and charges/get more in interest if you are willing to do more things in lower cost ways. At the moment other customers are cross-subsidising those who do things in the most inefficient ways.

quirkydeptless

Paul_Herring wrote: »

Another nail for the coffin for fee-free banking...

And thus for multiple current account tarting.


Ah well, fun whilst it lasts.

JuicyJesus

Paul_Herring wrote: »

Another nail for the coffin for fee-free banking...

quirkydeptless wrote: »

And thus for multiple current account tarting.


Ah well, fun whilst it lasts.

The whole tarting thing is pretty weird to begin with. It's not a sign of a healthy market where you can be paid £100 for essentially no effort or consideration on your part.

Takmon

JuicyJesus wrote: »

Excellent news. These fees were both unfair and ridiculously expensive compared to a percentage interest rate, significantly punishing people who use an overdraft moderately in favour of people who are banging up against the top of theirs every month. An overdraft that cost me pennies (while my partner was waiting for some invoices to be paid) would have cost me £20 if I had a fixed fee overdraft. And the absurdly complex fee structure that some have is ridiculous (7p per day per £100 or something, that's a nightmare to work out...)

Maybe banking shouldn't be fee-free.

But there is a wider point here: every other avenue for banks making money (or even making their costs back) is being closed off. It just so happens that this is one of the revenue streams that actually should be closed off, because it's detrimental to consumers.

I hope that going forward there's something akin to the FlexAccount/FlexDirect model that Nationwide have. You pay less in fees and charges/get more in interest if you are willing to do more things in lower cost ways. At the moment other customers are cross-subsidising those who do things in the most inefficient ways.

Going into an overdraft is a sign of poor financial management, if people managed their money correctly they wouldn't need an overdraft and wouldn't be charged. I've never gone into an overdraft in my entire life.

So they should be charged high fees for doing this to show going into an overdraft is not a normal thing to be doing and they need to manage their money better.

eskbanker

And round and round we go - as I recall overdrafts used to be charged at published interest rates as standard but the 2016 CMA recommendations on capping unauthorised overdraft costs led LBG in particular to introduce the concept of fixed-fee overdrafts on the basis that customers found interest rates too confusing!

bristolleedsfan

JuicyJesus wrote: »

.

I hope that going forward there's something akin to the FlexAccount/FlexDirect model that Nationwide have. You pay less in fees and charges/get more in interest if you are willing to do more things in lower cost ways. At the moment other customers are cross-subsidising those who do things in the most inefficient ways.

Nationwide ( excluding 12 month 5% rate for new customers) pay less in credit Interest than Lloyds/BOS, recently scrapped its 12 month C/A linked 5% regular saver to new account openings and is reducing Children savings rates, many people who do not go overdrawn have said what is point in having a Nationwide Current account


https://www.nationwide.co.uk/support/support-articles/rates-fees-charges/overdraft-bank-charges

https://www.nationwide.co.uk/support/support-articles/rates-fees-charges/overdraft-fees-charges#xtab:flexdirect

colsten

Takmon wrote: »

Going into an overdraft is a sign of poor financial management, if people managed their money correctly they wouldn't need an overdraft and wouldn't be charged. I've never gone into an overdraft in my entire life.

Congratulations for having been fortunate enough to always have enough money! Whilst I fully agree that management of your outgoings is crucial, and that going overdrawn should be avoided at all cost, it's totally ridiculous to suggest that needing an overdraft is a sign of poor financial management. In fact, I would suggest it is prudent financial management to have an overdraft facility, even if it sits there unused all the time. That is especially true when you can get hit with high unauthorised overdraft charges, as we can at the moment.

To give you an example: I have a few Regular Saver accounts which must be fed by SO from a current account with the same bank the RS is with. I am not using those current accounts for any other purpose than feeding the respective RS, and there is generally a balance of zero as they pay no interest. The money for the RS arrives, by SO, from my 'main' current account into the respective current account the RS is fed from, in time for the transfer to the RS if all works as planned. However, things (outside my control) might not work as planned, for a variety of reasons. Therefore I have agreed overdrafts on those current accounts, to the amount required for the respective RS. I have never needed to use any of those overdrafts but they are there should they be needed. If they were ever needed, I would settle them within a day or two.

There are plenty of other examples why people have arranged overdrafts, and some good reasons why some may occasionally have to dip into their overdrafts. Once the charges will be the same for arranged and for unarranged overdrafts will be the same, there may obviously be less, or no, need for having an arranged overdraft facility.

There are also 'good' reasons why some people constantly need to dip into their overdrafts, just as some people are forced at times to use food banks.

Finally, you are actually benefiting from people paying overdraft charges, as those charges contribute to the cost of making a free-of-charge bank account available to you.

eskbanker wrote: »

And round and round we go - as I recall overdrafts used to be charged at published interest rates as standard but the 2016 CMA recommendations on capping unauthorised overdraft costs led LBG in particular to introduce the concept of fixed-fee overdrafts on the basis that customers found interest rates too confusing!

I also remember that at least one consumer website, which shall remain nameless , hailed the arrival of fixed fees, in place of %age charges. How long before we hear cries again that %ages are too hard to work out?

Tom99

Years ago I used to work for a bank and if you went a penny overdrawn you were called before a senior manage to explain yourself.

colsten

Tom99 wrote: »

Years ago I used to work for a bank and if you went a penny overdrawn you were called before a senior manage to explain yourself.

I do remember the days when you had to justify and give them a precise reason why you want an overdraft facility. Thankfully, they are long gone, together with the pompous bank managers who instilled the fear of God into people.