Santander has scrapped unarranged overdraft fees for customers on its range of paid-for accounts and reduced charges on fee-free current accounts from today.
It comes two months after Which? research found the bank charged customers using an unauthorised overdraft 7.5 times more than a payday loan.
Which? explains the changes Santander has made to the way it charges for unauthorised borrowing and who will benefit under the shakeup.
How Santander’s overdraft fees have changed
Unarranged overdraft fees will no longer apply on paid-for accounts including the 123 Current Account, 123 Lite Current Account and the Select and Private current accounts.
Santander says the move will benefit four million customers who pay a monthly fee for their accounts.
Other personal accounts that are fee-free – including the Everyday, Student and Graduate account – will still be subject to unarranged overdraft fees. But Santander is slashing the monthly cap on these charges (known as the Monthly Maximum Charge) from £95 to £50.
The overdraft cap changes will be effective from the first full monthly statement period starting on or after 10 July 2018.
|Current account||Unarranged daily fee before 10th July 2018||Unarranged daily fee from 10th July 2018||Maximum Monthly Charge (MMC) before 10th July 2018||Maximum Monthly Charge (MMC) from 10th July 2018|
|123,123 Lite, Select, Private||£6 per day||n/a||£95*||n/a|
|Everyday||£6 per day||£6 per day||£95*||£50**|
|Student||£5 per day||£5 per day||£95*||£50**|
*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.
Are arranged overdrafts changing?
Santander says the costs of arranged overdrafts on the 123, 123 Lite, Select, Private and Everyday accounts will remain the same.
There will still be a fee-free £12 buffer and outside of this you will pay £1 a day for usage up to £1,999, £2 a day for usage from £2,000 to £2,999.99 and £3 a day for £3,000 or more.
Students can get a fee-free arranged overdraft of up to £2,000.
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 of the way it chooses to apply the Monthly Maximum Charge (MMC) cap.
In the past, Santander has used the MMC to cover both arranged and unarranged borrowing costs.
But now the cost cap will only apply to unarranged fees, which means paid-for account holders will not be protected by a cap on their arranged borrowing.
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 would have paid £95 in fees.
Under the new structure, you will pay £105.
Which? research into rip-off overdrafts
Earlier this year Which? compared the cost of borrowing £100 for 30 days using an unarranged overdraft with 16 high street banks compared to borrowing the same amount using a payday loan.
Overall we found 11 banks charged more than payday loan firms, which have been subject to a £24 cap since 2014.
Santander was found to be the most expensive high street bank charging customers using a £100 unarranged overdraft £179 over 30 days – making it 7.5 times more expensive than a payday loan.
TSB was 6.5 times more costly at £160, while HSBC and First Direct were six times higher at £150.
How unarranged overdraft fees compare now
The table below lists the main current account providers and their MMC cap, which shows you the most you will have to pay for slipping into the red.
|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|
|Santander||£50**||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|
*£67 for Personal Current Account Customers with Emergency Borrowing
**Applies to Everyday, Student and Graduate accounts
Santander’s overhaul of unarranged overdraft charges follows Lloyds Banking Group scrapping unarranged overdraft fees for all accounts in November 2017. The changes make the providers among the cheapest for unauthorised borrowing.
For more on the breakdown of unarranged overdraft charges and to see which account would be best for you, take a look at the best bank accounts for unauthorised overdrafts.
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.