Halifax and Lloyd’s Overdraft Changes – What it could mean for you
In a change it claims will benefit 90% of overdraft users, Lloyds Banking Group, which encompasses Halifax, Bank of Scotland, and Lloyds, enforced their new overdraft policy at the start of this month. Despite the fact that these changes will not negatively impact the vast majority of customers, an estimated two million customers will actually be left worse off. If you have an overdraft with one of these three banks, here are how the changes could affect you.
What has been changed?
As of the 2nd of November, Lloyds Banking Group introduced these changes to their overdraft fees:
- Using a planned overdraft will cost customers 1p per day for each £7 they borrow
- Fees will be added to customers’ balances daily, rather than monthly
- Fees for unplanned overdrafts will be completely scrapped
- The fee-free buffers which exist on some accounts will be reduced to £6.99
- Fees for missed payments will be removed
- Customers who have provided a mobile number will be sent text alerts when their balance is low
The 0% APR for student account overdrafts has not changed.
Who will benefit?
Whether or not you will save money from these changes depends on how you use your overdraft, which might not be the same from month to month, so it is hard to say who will benefit and lose out overall. However, it is possible to compare the new costs of a few hypothetical scenarios to previous fees.
Using a small-value overdraft for a short period of time
People using an overdraft of £100, for one week, will now be charged 98p, compared to the £6.27-£7 they would have paid before the changes.
Using a medium-value overdraft for a short period of time
Borrowing £450 for one week will now cost customers £4.48. The old overdraft fees would cost significantly more – £7 for Halifax, or £7.49 for Lloyds and Bank of Scotland.
Using a small-value overdraft for the entire month
Customers who were £100 into their overdraft throughout the month would have been charged £31 by Halifax, or £7.14 by Lloyds and Bank of Scotland. Since the recent changes, the cost of this borrowing has been reduced to only £4.34.
Halifax customers using a medium-value overdraft for the entire month
Borrowing £450 for a month cost Halifax customers £31 under the old fee structure, and will now cost them £20.20.
Using an unplanned overdraft
Customers who dipped into an unplanned overdraft would have been charged £5 or £10, depending on their account, by Lloyds Group. Now that fees for using an unplanned overdraft have been scrapped, these customers will only be faced with the standard flat-rate of interest rather than these fees.
Who will be paying more?
Of the two million people negatively affected by these changes, the most heavily impacted will be those who use high-value overdrafts for the entire month. Here are what the changes might cost:
Using a large-value overdraft for the entire month
Because interest on overdrafts is now added to accounts daily rather than monthly, it can compound and leave some customers much worse off than before. Borrowing £2,500 for a month now costs considerably more. Customers borrowing in this way will be charged £112.96, compared to the £62 which Halifax would have previously charged, or the fee of £43.62 formerly charged by Lloyds and Bank of Scotland.
Lloyds and Bank of Scotland customers using a medium-value overdraft for the entire month
Unlike Halifax customers, people banking with Lloyds or Bank of Scotland will be charged more for using a £450 overdraft for a month than previously. This would have costed £12.46, but will now cost £20.20.
Using a large-value overdraft for a short period of time
Customers who dip deep into their overdraft for a week – say, to pay for a large unexpected expense just before payday – will be worse off under the new charges. Borrowing £2,500 for one week will now cost customers £25.08, whereas it only would have cost £14 for Halifax customers, or £14.84 for Lloyds and Bank of Scotland customers prior to the fee changes.
Struggling to cope with these Changes?
If you are still unsure how these changes will affect you, you can use Halifax’s overdraft fee calculator to figure out how your overdraft use will now cost you. Unfortunately, the people worst affected by the new charges are the worst off – customers stuck with a large overdraft for the entire month. Fortunately, there are steps you can take to beat these charges, and reduce your debt.
Switch to a current account with a 0% interest offer
Some accounts allow you transfer your overdraft balance to one with a 0% interest introductory offer. This can give you the boost you need to ensure that your debt repayments are going towards clearing the debt itself rather than only serving the interest.
Consider paying off your overdraft with a 0% interest credit card
If accounts like this are unavailable to you, you might decide to instead use a credit card with an introductory 0% ARP interest rate to clear your overdraft, and make payments on the card instead, without being hampered by interest. Under certain circumstances, borrowing using an overdraft can be just as expensive as a standard credit card, so this is an option worth considering.
Consider a formal debt solution
If changes like these are not enough to significantly reduce your debt, it might be time to try a formal solution. An IVA or Trust Deed could write off some of your debt, whilst reducing your contributions to a single, affordable monthly payment.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.