HSBC plans to introduce a single overdraft rate of 39.9 percent for its UK customers from mid-March 2020, meaning it will be as much as quadrupling the rate it charges some existing customers.
The rate change comes as part of HSBC’s process of “simplifying” its overdraft structure which aims to “help overdraft customers keep a closer eye on their finances”.
Further changes include removing the £5 daily fee for going into an unarranged overdraft, reducing the maximum monthly charge from £80 to £20 on unarranged overdrafts and the introduction of an interest free £25 buffer on some accounts.
If a customer is overdrawn by £200 in an unarranged overdraft for 15 days, as of March they would be charged £2.78, instead of £80 under the old structure.
The new rates come as a response to rules from regulators designed to protect customers. In a statement, HSBC said combined with the fact it does not charge fixed fees or returned item fees, it means “the product is one of the most transparent and fair in the market”.
The Financial Conduct Authority (FCA) is introducing regulations to reform the “dysfunctional” overdraft market. According to the FCA, these changes “represent the biggest overhaul to the overdraft market for a generation”. Under the new regulations, which come into effect in April, unarranged overdrafts cannot be more expensive than arranged overdrafts.
According to the FCA, there are 14 million people in the UK who use unarranged overdrafts.
HSBC state that “for seven in ten customers who use an overdraft, it will be cheaper or cost the same”. However, this implies for around a third of their customers, they will be worse off under these new changes.
Madhu Kejriwal, HSBC UK’s head of lending and payments said: “By simplifying our overdraft charging structure we are making them easier to understand and giving customers tools to help them make better financial decisions.”