Santander has eliminated unarranged overdraft fees on accounts that charge a fee, as the Financial Conduct Authority ramps up its scrutiny on overdraft charges – a major revenue generator for banks.
From 10 July 2018, unarranged overdraft fees on Santander’s range of fee-charging accounts – including the 123 Current Account, 123 Lite Current Account and the recently launched Select and Private accounts – will be scrapped for four million customers.
Other personal accounts that are fee-free – including the Everyday, Student and Graduate account – will still be subject to unarranged overdraft fees, but the costs cap (known as the Monthly Maximum Charge) will be slashed from £95 to £50.
Santander follows Lloyds Banking Group, which scrapped unarranged overdraft fees last year. The Financial Conduct Authority (FCA) has continued to put this high-cost credit market under the spotlight, publishing an update to its review this morning.
Which? explains the changes to Santander’s unarranged overdraft borrowing fees, weighs up whether you’ll be better off, and explores the worrying trends the Financial Conduct Authority has uncovered.
How Santander’s unarranged overdraft fees will work
The table below sets out how Santander’s unarranged overdraft fees work now, compared with how they will work from 10 July 2018.
|Current charge for: 123 Current Account, 123 Lite, Select and Private accounts||Charge from 10 July 2018||Current charge for Everyday, Student and Graduate accounts||Charge from 10 July 2018|
|Unarranged overdraft fees||£6 a day||£0||£5/£6 a day||£5/£6 a day|
|Paid-transaction fees||£0||£0||£5/£10 per payment||£5/£10 per payment|
|Bounced-payment fee||£0||£0||£10 per payment||£10 per payment|
|Monthly Maximum Charge (MMC)||£95 a month*||n/a||£95 a month*||£50 a month**|
*For both arranged and unarranged borrowing
**For unarranged borrowing
Santander’s Basic Current Account will continue to be available. This account has no overdraft fees and no monthly account fee.
It’s important to note there are no changes to arranged overdraft fees. Most accounts will continue to get a fee-free £12 buffer, or be charged £1 a day for usage above £12 up to £1,999, £2 per day for usage from £2,000 to £2,999.99 and £3 per day for £3,000 or more.
Santander says it will enrol all customers onto its unarranged overdrafts alerts service from 2 February to cut back on the number of customers that slip into the red.
Will you be better or worse off?
Santander says that the vast majority of overdraft users will benefit from these changes but a small proportion (0.1%) could pay higher total overdraft fees.
This is because the Monthly Maximum Charge (MMC) cap will only apply to unarranged overdraft fees, whereas now it is applied to both arranged and unarranged fees combined.
So if you had an Everyday account and over one month you used £3,000 of an arranged overdraft for 25 days, and then went into an unarranged overdraft for five days, you’d currently pay £95 in fees. Under the new structure, you would pay £105.
Santander is notifying customers of the changes in February to give them the time to review their options before the change comes into force in July.
Why are providers changing unarranged overdraft fees?
Santander’s overhaul of unarranged overdraft charges follows Lloyds Banking Group scrapping unarranged overdraft fees for all accounts in November 2017.
A ruling from the Competition and Markets Authority (CMA) in 2016 forced all providers to improve the transparency of their unarranged overdraft fees.
It ordered banks and building societies to standardise charges for unauthorised overdrafts to make it easier for people to compare current accounts.
Since September 2017, all current account providers have to set a Monthly Maximum Charge (MMC) which shows the upper limit of what a customer can rack up in interest and fees for overdrawing their account.
How do unarranged overdraft fees compare?
The table below lists the main current account providers and their MMC, which shows the most you will have to pay in a month for slipping into the red.
|Provider||Monthly Maximum Charge (MMC) cap||Type of borrowing it applies to|
|Lloyds Bank||n/a||No unarranged overdraft charges|
|Halifax||n/a||No unarranged overdraft charges|
|Bank of Scotland||n/a||No unarranged overdraft charges|
|Barclays||£32*||Unarranged overdraft charges|
|Nationwide||£50||Unarranged overdraft charges|
|Tesco Bank||£75||Unarranged overdraft charges|
|HSBC||£80||Unarranged overdraft charges|
|First Direct||£80||Unarranged overdraft charges|
|TSB||£80||Unarranged overdraft charges|
|RBS||£80||Unarranged overdraft charges|
|NatWest||£80||Unarranged overdraft charges|
|Ulster Bank||£80||Unarranged overdraft charges|
|Santander||£95**||Arranged and unarranged overdraft charges***|
*£67 for Personal Current Account Customers with Emergency Borrowing
** From 10 July 2018, unarranged overdraft fees scrapped for most customers and the MMC reduced to £50 for others
***From 10 July 2018, moves to just covering unarranged overdraft charges
As you can see, the Lloyds Banking Group brands, which includes Halifax, Lloyds Bank and Bank of Scotland, have no MMC as they have scrapped unarranged overdraft charges altogether – though fees for arranged overdrafts continue to be charged.
Santander currently has the highest cap for unarranged overdrafts.
You can go further and take a look at the best bank accounts for unauthorised overdrafts for more on the breakdown of unarranged overdraft charges and to see which account would be best for you.
If you slip into an overdraft regularly you should consider getting an arranged overdraft, as the charges are much lower than those applied to unauthorised borrowing.
Some offer fee-free limits, while others may be much cheaper than what you are currently paying.
See how your current deal measures up in our guide on the best bank accounts for authorised overdrafts.
Unarranged overdrafts under the spotlight
The Financial Conduct Authority is currently investigating the high-cost credit market, including arranged and unarranged overdrafts.
Last year, it slammed the costs of unarranged overdrafts and asked whether they should ‘have any place in any modern banking market.’
It expressed concerns that unauthorised overdrafts aren’t subject to the same credit checks and are in some cases more expensive than other high-cost short-term credit options, such as payday loans.
Research carried out by Which? found that using an unplanned or unarranged overdraft could cost as much as £156 more than using a payday loan.
Today, the Financial Conduct Authority has published an update on its review, where it expresses more concerns with the fees and charges for unarranged overdrafts.
In its analysis, the proportion of money raised from unarranged overdrafts is significantly higher compared with the amounts lent.
The FCA says the majority of unarranged borrowing is under £50, but a typical fee of £5 a day – around 10% (or more) of the amount borrowed.
By contrast, the payday loan price cap limits interest and other charges to 0.8% per day, or 40p a day for a £50 loan.
The regulator says this suggests that charges need to be simplified to ensure they are clear and better reflect how unarranged borrowing is used.
What next for unarranged overdrafts?
Current account providers make a whopping £1.2bn a year from unarranged overdraft charges and there are concerns that losing this revenue stream could mean we end up paying more for other services.
In its report last year, the FCA noted: ‘Any regulatory intervention that reduces one revenue stream is likely to have an impact elsewhere.’
The impact is something we’ve already seen with Lloyds Banking Group – including Lloyds Bank, Halifax and Bank of Scotland – removing all fees for retail customers that fall into unplanned overdrafts in November 2017.
At the same time, the bank introduced a new flat-rate charging system for those that use arranged overdrafts which will cost 1p per £7 borrowed – costing more for those struggling with larger overdraft debt.
To date, the FCA hasn’t reached any final decisions about whether unarranged overdrafts cause consumer harm or how to intervene.
It will provide another update in May 2018 and will feed findings into the Strategic Review of Retail Banking Business Models that will be finalised at the end of the year.