Millions of Lloyds, Halifax and Bank of Scotland customers could benefit from a bank charge overhaul, meaning they won't pay if they go over their overdraft limit and there'll be no fees for missed payments – but two million could be worse off.

Lloyds Banking Group, which includes Halifax and Bank of Scotland, says about 18 million customers will be better off or unaffected by the changes being made in November, which include a new single charge of 1p a day per £7 borrowed on arranged overdrafts.

But around two million customers may be worse off as the new charges could cost more than the current interest or charges they're paying.

If you're struggling with overdraft charges, take a look at our Cut Overdraft Costs and Debt Help guides. And if you want to switch to a new account with a 0% overdraft, see our Best Bank Accounts guide.

'I hope this signals the death knell for punitive bank charges' founder Martin Lewis said: "The big picture here is good news. Charges for breaching your overdraft limits have been a scourge for many years. A decade ago I was often called the 'big gob in chief' of the campaign against unfair bank charges, where people reclaimed over a billion pounds, until the Supreme Court pulled the plug on a technicality.

"The big problem with these bank charges has always been that they're punitive, designed so that they're a struggle to repay, meaning charges on charges. Some people wound up owing thousands after just one or two small financial issues.

"The legacy of the bank charges campaign has been a slow softening of this system. I hope that the Lloyds announcement today signals the final death knell for the charges.

"Yet even after this it still won't make being overdrawn cheap. People often pooh-pooh credit cards, but if you're overdrawn debit cards are debt cards too – shifting to a bank with a 0% overdraft and using that to give you respite to clear the debt is the best option.

"And anyone who has had bank charges which have contributed to them being in financial hardship may still be able to reclaim them and get hundreds back. There's full help and free template letters in Bank Charge Reclaiming."

What are the changes?

From November, the following will apply across Halifax, Lloyds and Bank of Scotland:

  • Arranged overdraft fees will be a flat rate of 1p per £7 borrowed.
  • There won't be any unarranged overdraft fees and charges.
  • There'll be no fees for missed payments.
  • Fee-free buffers on many accounts (eg, £25 on Lloyds/Bank of Scotland Classic and £50 on Halifax Reward) will be reduced to £6.99.
  • Overdraft fees will be charged at the end of each day rather than once a month.
  • All customers who've given their mobile number will be sent text alerts when their balances are low.

Fee-free overdrafts with student accounts, Club Lloyds accounts and packaged accounts, eg, Halifax Ultimate Reward, will remain.

The removal of unarranged overdraft charges will also affect three million basic bank account customers still being hit by fees. Since January 2016, new basic bank accounts with Lloyds Banking Group have been completely fee-free.

Lloyds Banking Group's changes come after scrutiny of overdraft charges from the Competition and Markets Authority, which has told banks they need to impose a cap on monthly unarranged overdraft charges by 2 August. The Financial Conduct Authority is also expected to tackle overdraft fees in a report later this month.

Here's how three of the group's popular accounts will be affected:

Lloyds Banking Group overdraft changes

Current charges
New charges from Nov
Club Lloyds Halifax Reward Bank of Scotland Classic
Arranged overdraft Up to £25: 0%

Over £25: 19.89%
Up to £2k: £1/day

£2k-£2,999: £2/day

Over £3k: £3/day
Up to £25: 0%

Over £25: 19.89%
1p/day per £7
Unarranged overdraft Up to £10: 19.89%

£10-£25: 19.89% + £5/day

Over £25: 19.89% + £10/day
£5/day Up to £10: 19.89%

£10-£25: 19.89% + £5/day

Over £25: 19.89% + £10/day
Monthly fee £6 None £6 Removed
Unpaid item fee £10 (max 3/day) None £10 (max 3/day) Removed
Fee-free buffer £100 £50 £25 No change for Club Lloyds; others will be fee-free up to £7

Will I be better or worse off?

The average Lloyds Banking Group customer who uses their overdraft owes £450 – borrowing this for a week under the new structure would cost £4.48, compared with £7.49 currently with a Bank of Scotland Classic account.

It's hard to give an exact cut-off point where the changes will make you better or worse off, as it depends on how much you've borrowed and for how long, and which account you have, but as a rule of thumb:

  • If you use an unarranged overdraft of any amount. You'll be better off, as you'll no longer face any charges. Lloyds Banking Group has told us that customers would typically only be able to go into an unarranged overdraft by tens of pounds for a couple of days.
  • If you use an arranged overdraft of less than £650ish. You'll probably be better off, or unaffected by the changes.
  • If you use an arranged overdraft of more than £650ish. You'll probably be worse off.

You'll be contacted at least two months ahead of the changes, and if you're one of the people who'll be worse off, will be offered a "tailored transition plan" to review other possible options.

What does Lloyds Banking Group say?

Vim Maru, group director for customer products and marketing, said: "This new approach is simple and clear, giving customers more control of their overdraft borrowing and how they manage their finances. When asked about our new approach, over 80% of customers said that they preferred it compared to the current charging format."