What do I do with my overdraft? Is it cheaper to not have one and get charged less if I go over?

Jessification

Hello there - I'm reading all about the new fees with Overdrafts.

I pretty much live in mine.

Now I'm worried the fees are going up - can anyone explain this to me in simple terms? I have a 2k overdraft.

Obviously - I know I should pay it off.

Should I also look to get it removed? And then if I "go over" do I understand that'll be cheaper than having a pre-arranged one?

Looking for any advice so I can get this sorted ASAP.

J

BoGoF

What makes you think an unapproved one will be cheaper than approved.

If you can pay it off, then do so (if you can pay it off why are you living in it).

Jessification

I've been reading that banks are changing OD fees so that pre-arranged overdrafts are more expensive than if you accidentally go overdrawn.... I can't post a link as I'm new on here - but t's on the front page of the BBC at the moment.

I could be reading it wrong?

born_again

Jessification wrote: »

Hello there - I'm reading all about the new fees with Overdrafts.

I pretty much live in mine.

Should I also look to get it removed? And then if I "go over" do I understand that'll be cheaper than having a pre-arranged one?

Looking for any advice so I can get this sorted ASAP.

J

If you can afford to pay it off, then remove it. At least then if you go over (a bit of debate on if banks are going to stop you going over, thus could incur more charges for failed DD's etc) you would be in the capped area.

But you will have to ensure that you can stay within your limits.

Willing2Learn

Jessification wrote: »

I've been reading that banks are changing OD fees so that pre-arranged overdrafts are more expensive than if you accidentally go overdrawn.... I can't post a link as I'm new on here - but t's on the front page of the BBC at the moment.

I could be reading it wrong?

The BBC say the following:

The Financial Conduct Authority, the City watchdog, is planning to shake up the "dysfunctional" overdraft market, by stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.

The new rules, which come into force in April, require providers to charge a simple annual interest rate on all overdrafts and to get rid of fixed fees.

The result has been bunching among banks and building societies - with most setting a rate very close to 40%.

That would mean somebody who borrowed £100 as an overdraft for a whole year would pay £40 to the bank for the service.

Nationwide, HSBC and RBS have all set their rate at just above 39%, with Barclays setting its rate at 35%.

The majority of customers, primarily those with an unarranged overdraft, would be better off under these rates, but some who had arranged their overdraft facility would be worse off.

Source: https://www.bbc.co.uk/news/business-51106886


I don't know if the above quoted information from the BBC is correct. Maybe someone with more knowledge could advise on that...

Willing2Learn

I forgot to say. If you think you will be in financial difficulty with the changes to your overdraft, then I suggest you post your SOA (Statement of Affairs) in to a new thread on the Debt-Free Wannabe (DFW) board. We might be able help you with your monthly budget so that you can clear the overdraft...

eskbanker

Jessification wrote: »

I've been reading that banks are changing OD fees so that pre-arranged overdrafts are more expensive than if you accidentally go overdrawn.... I can't post a link as I'm new on here - but t's on the front page of the BBC at the moment.

I could be reading it wrong?

Willing2Learn wrote: »

BBC wrote:

The majority of customers, primarily those with an unarranged overdraft, would be better off under these rates, but some who had arranged their overdraft facility would be worse off.

Not sure if that's the wording that OP referred to, but in the context of banks being forced to harmonise on a standard interest rate, it's not really a surprise that it'll often be better than that previously charged for unarranged overdrafts and worse than that for arranged ones.

However, interpreting that as meaning that an arranged overdraft should be ditched, while expecting to be able to dip into the red without one, would be rash!

Banks have always retained the discretion not to accept transactions that'll take accounts into unarranged overdraft and at least one has already declared that they'll actively take measures to decline in such circumstances going forward, so anyone thinking they can rely on going overdrawn without prior arrangement runs the risk of cost, disappointment, embarrassment, etc....

born_again

eskbanker wrote: »

N
Banks have always retained the discretion not to accept transactions that'll take accounts into unarranged overdraft and at least one has already declared that they'll actively take measures to decline in such circumstances going forward, so anyone thinking they can rely on going overdrawn without prior arrangement runs the risk of cost, disappointment, embarrassment, etc....

Which the way banking is now, that you have until the end of the banking day to bring your account back in line.
Makes it very hard to judge what they will do.
It may become more of a manual review on accounts that will go over limit and a call made by how the customer manages their account.
Or (beans counters favourite, now :rotfl:) A blank rule that does not allow any over limit spending.

Personally and many customers say this.
The limit should be just that.

Ben8282

I assume the BBC reference is to this https://www.bbc.co.uk/news/business-51106886