Earlier today, Martin Lewis joined Holly and Phillip on the This Morning sofa, to inform us why we should all be paying more attention to what’s happening with new overdraft charges being implemented.
‘Overdrafts are the new danger debt,’ warns the Money Saving Expert. ‘This is a really important warning, for anyone – especially those who are constantly in their overdrafts. Things are likely to get much more expensive’.
As Martin reveals a new 40 per cent standard interest rate charge across the board, Holly exclaims, ‘There are going to be so many people looking as this and going ‘Oh my gosh, I’ve got an overdraft, what do I do?’. ‘It is absolutely petrifying’ is Martin’s response.
‘This is all on the back of changes that the regulator has imposed to start in April,’ Martin explains.’That’s the Financial Conduct Authority (FCA), and it’s doing two things. The first is it’s saying all fixed monthly charges need to be be got rid of. And so now all banks need to charge a single interest rate, an annual interest rate on their overdrafts – nothing too bad there,’ he adds.
He then asks the pair, ‘want to see the bad news?’. Both with worried faces, Holly hesitantly says, ‘yes please’. Martin asks for a table to be presented on the screen behind, which demonstrates the new charges from the majority of major high street banks and money providers.
Introducing them, Martin says, ‘These are the new overdraft charges’. The chart of the screen reveals Nationwide, HSBC, First Direct, M&S, RBS, Natwest and Santander are all in the top bracket – charging 40 per cent interest rate.
Martin explains these are ALL between 39 and 40 per cent. He adds, ‘there are some that haven’t announced yet, but 4o percent is the new normal.’
‘It’s worth just looking at some of these as to what’s actually changed’, he explains to the startled pair. ‘If we take some of those banks – HSBC, First Direct and M&S for example – they all currently charge an interest rate of less than 20 per cent. They don’t have a daily charge. They’re NOW going to be charging 40 per cent!’ he warns.
‘What does that actually look like?’ Holly asks, slightly bewildered by the news. By way of helping us non-money experts, Martin puts it simply. ‘A really easy way to think about this is, a typical high street credit card is 19 per cent. These are 40 per cent, so overdrafts are now double the cost of a credit card!’
‘We talk about credit cards being bad, debit cards good,’ says Martin. Well, if you’re overdrawn, now a debit card is more expensive than a credit card’.
Martin’s advise is now to prioritise paying the minimum off any credit cards, and use all the spare cash to clear overdrafts.
‘This is totally changing our financial structures.’ Hence why this is such big news for the Money Saving Expert.
It’s not all bad news, Martin adds, ‘There’s good news, as banks are no longer allowed to charge people who bust their overdraft limit any more than people who don’t. And that’s a culmination of the campaign I was heavily involved in back in 2005 to 2009, about unfair bank charges.’
Martin goes on to say that it’s complicated. There are cases where you can be better off if you only use your overdraft little and often. But it’s a fear for the majority that this is not the case. For more information and to see exactly how you’ll be affected, head to the man himself over at MoneySavingExpert.
Will you be looking into how you can reduce your overdraft? We certainly all will.