Lloyds TSB and Bank of Scotland (BoS) will scrap overdraft charges for many customers who slip into the red this autumn. However, they are raising fees for customers who pay for an overdraft facility.

The revamp, which comes into force on 2 October, effectively means the sister banks are giving with one hand but taking with the other.

Today's announcement comes just a few days after Halifax, also part of the larger Lloyds Banking Group, revealed it is raising charges for customers who are £2,000 or more overdrawn.

Fees scrapped for slipping over

Lloyds and BoS will no longer charge customers who are up to £35 overdrawn on their fee-free Classic accounts.

This is made up of:

  • a new £25 fee-free allowance
  • plus the existing £10 buffer, which stays on all accounts.

The £25 allowance comes first, with the buffer applying for those who are £26-£35 overdrawn.

However, once the new regime starts in October, they will be applied on the buffer balance upwards. So if you go £40 overdrawn, you'll pay charges based on a £15 overdraft balance as only the £25 fee-free allowance is discounted.

The fee-free allowance will also be introduced or extended on the banks' fee-paying accounts, as follows:

Lloyds TSB & BoS overdraft allowances

Account Fee-free zone now Fee-free zone, 2 Oct Extra buffer
Classic nil £25 £10
Silver nil £50 £10
Gold £100 £150 £10
Platinum £250 £300 £10

Higher overdraft charges

The bad news is customers who are charged for using an overdraft will pay more.

The overall impact on someone £1,000 permanently overdrawn, in an authorised overdraft, is they'd pay £271 a year under the new regime compared to £253 now on the Classic account.

The monthly cost for anyone in a chargeable zone will rise from £5 to £6 on all accounts if the overdraft has been agreed.

Meanwhile, the interest on chargeable balances is also rising on all accounts whether or not the overdraft has been agreed, as detailed in the table below.

Lloyds TSB & BoS overdraft interest charges

Account Overdraft interest rate now Overdraft interest rate, 2 Oct
Classic 19.28% 19.94%
Silver 18.86% 19.94%
Gold 17.32% 19.94%
Platinum 14.28% 17.28%

The daily fees for unauthorised overdrafts do not change.

They are:

  • £10 or less = £0
  • £10-£25 = £5 a day
  • £25+ = £10 a day

A maximum of eight daily fees can be charged in a monthly billing period.