Nationwide is scrapping its unarranged overdrafts from November 2019, in line with new rules from the city watchdog. At the same time, however, two thirds of customers may end up paying more, as the costs of arranged borrowing go up.
The UK's biggest building society has become the first lender to implement new rules introduced by the Financial Conduct Authority (FCA), which ban unarranged overdraft fees and daily charges from April next year.
The Nationwide changes will make overdrafts simpler to understand, with all accounts charging the same percentage rate, instead of the current day-by-day fee structure. However, if you have an arranged overdraft, you could find yourself paying more for borrowing overall.
Which? explains how overdrafts at Nationwide are changing and why other banks are likely to follow suit in coming months.
Nationwide offers three kinds of current account: FlexAccount, FlexDirect, and FlexPlus.
At the moment, these accounts each have different fees, so that you'll be charged varying per-day rates for going over your account balance. You'll also be faced with different fees depending on whether the overdraft has been agreed in advance (arranged) or not (unarranged).
The FlexPlus offers a £250 fee-free buffer, which you allows you to borrow a set amount before charges kick in, while the FlexDirect offers a buffer of £10 a day.
From November 2019, none of the accounts will offer unarranged overdrafts. If you attempt to make a payment with insufficient funds in your account, it will be rejected - although Nationwide is also scrapping fees for refused payments, so you won't be stung with an extra charge if the transaction fails.
For arranged borrowing, all accounts will charge the same rate of 39.9%, with no caps or fee-free buffers.
Here's how overdraft fees for each of the building society's current accounts will change from 11 November:
|Account||Current overdraft fees||New overdraft fees|
|FlexAccount||Arranged overdraft: 18.9%||Arranged overdrafts: 39.9% with no daily fees, no transaction fees, no monthly caps, and no fee-free buffers.Unarranged overdraftfees will no longer exist.|
|Unarranged overdraft: 18.9% capped at £50 a month plus £5 unpaid transaction fees for refused payments capped at £45 per month|
|FlexDirect||Arranged overdraft:50p a day above a £10 fee-free buffer|
|Unarranged overdraft:various daily and transaction fees capped at £50 a month|
|FlexPlus||Arranged overdraft:50p a day above a £250 fee-free buffer|
|Unarranged overdraft:£5 a day capped at £50 a month|
Will you pay more for your overdraft?
Under the new pricing plan, around two thirds of customers will end up paying more to borrow from their current account.
According to Nationwide, the new rate of 39.9% APR is roughly equivalent to 46p per day, comparable to the current fees charged to FlexDirect and FlexPlus customers. Notably, though, these customers will no longer benefit from monthly fee caps, or fee-free borrowing.
Nationwide says: 'For the majority of our members, these changes will mean little or small changes in borrowing costs. Of those who will see an increase, most will see a rise of 20p a day or less.'
Nationwide confirmed it will give customers at least 60 days' notice of these changes.
People who frequently borrow higher amounts of money could suffer the most. Nationwide says it will proactively contact these customers to 'discuss their personal circumstances and explore alternative borrowing options'. People in financial difficulties may be offered a repayment loan charged at 18.9% APR, to keep their payments manageable, it said.
Since Nationwide is the first firm to make changes based on the FCA's ruling, at this stage there's no way to directly compare its offer to competitors.
Back in June, the FCA confirmed that new rules on overdraft fees would be enforced from next April. The announcement came after years of campaigning from Which?, urging the regulator to take action on excessive charges.
Under the rules, banks and building societies will no longer be able to charge more for unarranged overdrafts, and day-by-day overdraft charges will be banned.
Banks will also have to provide annual percentage rates (APRs) for their overdrafts, as they do with loans, to make them easier to compare.
All banks and building societies will need to be compliant by April 2020.
Dan Wass, Nationwide's director of banking and insurance, said: 'We always strive to make our products as simple and transparent as possible, supported by services that help our members stay in control.
In the additional context of the FCA's review of overdrafts, we are confident that the removal of unarranged borrowing charges, the introduction of a single interest rate, and extending our existing suite of alerts, will set a new standard for simplicity, transparency, and control in meeting our members' day-to-day borrowing needs.'
It's likely that more banks will follow in Nationwide's footsteps in coming months, as the FCA deadline grows closer.
Overdrafts are big business, with firms making £2.4bn from overdrafts alone in 2017, according to a FCA report. Of this total pot, £0.7bn came from unarranged overdrafts.
Once unarranged overdraft fees are banned, more banks may seek to make up for lost revenue by hiking fees on arranged products. In its report, the FCA anticipated this response from banks, concluding that consumers would still be better off on balance.
Keep a look out for correspondence from your bank between now and April 2020 to see what changes it plans to make.