High street bank Santander has removed unarranged overdraft fees for all its customers on a wide range of paid-for accounts. The bank has also reduced fee- free current account charges effective 10th July 2018. This comes exactly two months after the UK consumer association, Which? found the bank guilty of charging its customers unauthorised overdraft fees amounting to 7.5 times more than what UK payday loan borrowers pay. Which? has explained the changes Santander has made to it charges as well as who will benefit from the shakeup.
How have Santander’s overdraft fees changed?
Paid-for accounts including the; 123 Lite Current, 123 Current Account and the Select & Private current accounts will not attract unarranged overdraft fees. Santander states that the move will benefit 4 million customers who pay monthly fees for their accounts.
Other fee-free personal accounts such as Student, Graduate and Everyday accounts will still attract unarranged overdraft fees. However, Santander is reducing the monthly limit on these charges to £50 from £95. Santander will continue offering Basic Current Accounts which don’t attract any monthly account fees or overdraft fees.
What about arranged overdrafts?
The cost of Santander’s arranged overdrafts for 123, 123 Lite, Private, Select and Everyday accounts remains the same. Account holders will still enjoy a fee- free buffer of £12; however, customers will be required to pay £1, £2 and £3 daily for using up to £1999, £2000 to £2999 and £3000 or more respectively. Santander student account holders will enjoy fee-free arranged overdrafts up to £2000.
In case you are interested in finding out whether these changes will leave you better off or worse off, most overdraft users will enjoy benefits from these changes according to Santander. Only a small percentage (0.1%) will pay more in total overdraft fees as a result of how Santander applies the MMC (Monthly Maximum Charge) cap.
Santander used the Monthly Maximum Charge to cater for arranged and unarranged lending costs in the past. As of now, the cost cap only applies to unarranged fees. So, paid-for account holders won’t be shielded by a cap in regards to arranged borrowing.
Example: If you have an Everyday account and you use £3000 (an arranged overdraft) for 25 days and then slip into an unarranged overdraft for 5 days, you
would be required to pay £95 in fees. With the new changes, you will be required to pay £105. Which? take on rip-off overdrafts
Early 2018, Which? Conducted a comparison of borrowing costs (borrowing £100 for a month) via unarranged overdraft with sixteen high street banks vs. borrowing the same amount via payday loan lenders.
The findings revealed that a record 11 banks, out of sixteen charge more than payday loan lenders. This simply means that overdrafts are more expensive than payday loans in the UK. The overall cost of payday loans has capped by the FCA since 2014.
According to the Which? comparison, Santander emerged to be the most expensive UK high street bank. Its customers were being charged £179 to use a £100 unarranged overdraft over 30 days. This translated to 7.5 times more than the cost of a payday loan. TSB was 6.5x more costly (total cost £160) while First Direct and HSBC were 6 times more expensive at £150.
Comparison with unarranged overdraft fees now
After listing the main UK current account providers as well as their MMC cap, it’s easy to see the amount of money a customer would be expected to pay if they “slip into the red”. Halifax, Lloyds Bank and Bank of Scotland don’t have an MMC cap and no unarranged overdraft charges. Barclays has unarranged overdraft fees and a £32 MMC cap. Santander and Nationwide have a £50 MMC cap, Tesco Bank has a £75 cap, and HSBC, TSB, First Direct, RBS, Ulster, and NatWest all have a £80 MMC cap.
Personal current account holders with emergency borrowing will pay £67. The fee applies to Student, Graduate and Everyday accounts.
Santander’s changes on unarranged overdraft charges follow Lloyds Banking Group’s action to scrap unarranged overdraft fees in November 2017. The changes make Santander among the cheapest providers of unauthorised borrowing.
If you tend to use unarranged overdrafts regularly, consider arranged overdraft facilities since the charges are lower compared to those incurred with unauthorised borrowing. You can get fee-free limits among other cheaper options than what you pay normally.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.