Halifax and Lloyds overdraft changes - the winners and losers

Lloyds Banking Group, which includes Halifax and Bank of Scotland, announced the changes a couple of months ago, but they've only just come into force. It says about 90% of its current account customers - about 18 million people - will be better off or unaffected by last week's changes, which include a new single charge of 1p a day per £7 borrowed on arranged overdrafts.

But around two million customers will be worse off as the new fee structure has made their overdraft more expensive. We've seen many tweets and emails like Danny's: "New overdraft fees £3.18 per DAY. I’m £2,500 overdrawn! Way beyond simple change in terms." and Carly's: "Help! Lloyds Bank now charging 1p per £7 overdraft fees... £51 a month for me! What bank can I switch to to save myself?!"

We've analysed the changes to understand who will be better off and who will be worse off. Though, even if you're a winner from the changes, you're still paying overdraft fees, so you should look to see if you can shift your debt (that's what an overdraft is) to 0%. More details on this below.

What are the changes?

On 2 November, Lloyds Banking Group changed its overdraft charging structure:

• Arranged overdraft fees are now a flat rate of 1p per day for every £7 borrowed. So say you're £500 overdrawn you're initally charged £0.71 per day, but as fees are now added to your balance daily, they compound from day 1 meaning you'll pay £22.47 per month and £340 per year (even if you don't spend any more).

• Lloyds and Bank of Scotland customers will no longer pay £6/mth overdraft usage fees.

• Halifax customers will no longer pay the £1, £2 or £3 per day fees that were on many old accounts.

• There are no longer any unarranged overdraft fees and charges.

• There are now no fees for missed payments.

• Fee-free buffers on many accounts have been reduced to £6.99.

• All customers who've given their mobile number will be sent text alerts when their balances are low.

Winners & losers

This isn't straightforward as everyone uses their overdraft differently, and charges will vary depending on the amount you're overdrawn and how long you're overdrawn for, plus which bank you're with. We've therefore picked some key scenarios to highlight who wins and who loses under the new fee structure.

• A large overdraft that you're in for the entire month - all lose. If you owed £2,500 at the start of the month, and didn't spend any more, it starts off costing £3.57 per day under the new charging structure. But by day 31, the charge is £3.72 per day, as the overdraft fees have increased the balance to over £2,600. The total overdraft cost for the month is £112.96. Previously, this would have cost £62/mth for most Halifax accounts, or £43.62 with most Lloyds and Bank of Scotland accounts.

• A medium sized overdraft you're in for the entire month - Halifax account holders win, others lose. The average overdraft (for those who have one) with Lloyds Banking Group is £450. Under the new structure, you'll pay £20.20, compared with £31 previously for most Halifax accounts or £12.46 for most Bank of Scotland and Lloyds accounts.

• A small overdraft you're in for the entire month - all win. Being £100 overdrawn will cost you £4.34 under the new charging structure. Previously, you would have paid £31 for most Halifax accounts, or £7.14 with Lloyds and Bank of Scotland accounts.

The picture gets a bit simpler if you're not in your overdraft for the entire month...

• A large overdraft you're in for a week - all lose. A slightly contrived scenario, but you may have a large, unexpected expense a week before payday that causes this. Borrowing £2,500 for a week now costs £25.08, compared with £14 for a Halifax account and £14.84 with a Bank of Scotland or Lloyds account before the changes.

• A £450 overdraft for a week - all win. Borrowing this for a week now costs £4.48, compared with £7 for a Halifax account and £7.49 with a Bank of Scotland or Lloyds account before the changes.

• A small overdraft you've just dipped in to for a week - all win. Borrowing £100 for a week now costs £0.98, compared with £7 for a Halifax account and £6.27 with a Bank of Scotland or Lloyds account before the changes.

There are a couple of other winners too...

• People regularly in their unarranged overdraft will win. Halifax charged £5/day for this, Lloyds and Bank of Scotland either £5 or £10 per day, plus interest. Now it's been scrapped, for almost all who accrued a lot of charges each month, the new fees will be cheaper. Though if you've a large overdraft and you only occasionally busted your limit, you're still likely worse overall because of the increase in daily charges.

• People with old basic bank accounts will all win. The removal of unarranged overdraft charges has also benefited three million basic bank account customers who opened their accounts pre-2016 and were still being hit by fees. Anyone who opened a basic bank account with Lloyds Banking Group since Jan 2016 hasn't been charged any fees on the account.

Obviously, most of these examples don't reflect reality, as it's unlikely you'll have an overdraft balance that never changes. We've had a go at seeing what would happen if you went into your overdraft on the 17th of the month, then spent £30/day until the end of the month and payday, as this is a more realistic way to use an overdraft. Under the new system, fees are £4.46; previously you'd have paid £14 with Halifax and £7.37 with Lloyds and Bank of Scotland.

If you want to find out how much you'll pay in your circumstances, you can use the Halifax overdraft calculator (charges are the same for Lloyds and Bank of Scotland).

So if you're paying more (or just want to cut costs) - try and shift your overdraft costs to 0% NOW.

As we've said, around two million Lloyds, Halifax and Bank of Scotland customers will now be paying more, like Stephanie who tweeted: "desperate for help... Lloyds Bank are charging me £2 a day as from this month. I can't afford it." Like any debt the crucial thing is to try and cut the interest you pay to 0%. That way more of your payments actually repay the debt. So here's our key options - scan down the list until you find the one that's right for you...

Option 1: Switch bank

• Small overdraft, or only occasionally slip in? First Direct* offers an an ongoing £250 0% overdraft to those who qualify (15.9% EAR on more). If you switch to it via our link, you'll also get a £125 bonus which can be used to reduce your existing overdraft.

  You'll need to pay in £1,000/mth - equiv to £13k/yr salary, or there's a £10/mth fee. In our last poll, 90% of people rated First Direct 'great'.

• Switch for a 6 month 0% overdraft, plus get £150 bonus. Switchers to HSBC Advance* can get a 0% overdraft for 6mths (17.9% EAR after). There's no set limit to the overdraft as it depends on your credit score, but HSBC says the standard offer is £1,000.

  Plus, if you switch and fulfil a couple of conditions, HSBC will pay you £150 (and another £50 if still with it after a year). You'll need to apply online, then call or go to a branch within 30 days to start the switch which must include two or more direct debits or standing orders. To keep the account (and get the extra £50) you must pay in a high £1,750+/mth and register for online banking within 60 days.

• Get a 0% overdraft for 12 months. If you can pay you overdraft off within 12 months, then Nationwide's FlexDirect account could be a good bet. If accepted and approved, you get a 0% overdraft for a year (50p/day after).

  There's no set limit as it depends on your credit score, but many have been given enough to allow them to switch, as Matt tweeted: "Matched my old one - £1,200. Implied I could have asked for more but the point was I wanted to pay off."

  Plus if you've a friend who's already got a Nationwide account, you both get £100 if you switch via Nationwide's recommend a friend scheme.

Option 2: Use a 0% credit card to pay it off

There's two main ways to do this, and though which you can use (if any) will depend on your credit score.

• Shift your overdraft to a 36-mth 0% credit card. This is a good move for bigger overdrafts. There are a few specialist money transfer credit cards which let you pay cash into your bank, so you can pay off your overdraft, then you owe it instead.

  The top pick is Virgin Money, which lets accepted customers do a money transfer at 0% for 36 months for a one-off 2.9% fee. For more options and your chances of getting them, use our Free Eligibility Calculator.

  Beware! Most cards don't allow this cheaply, so know what you're doing. You can find step-by-step help in Money Transfers

• Use a 0% spending card. The options above won't help if your score's poor, but a couple of cards have 0% spending for those with a poor history (county court judgments, or CCJs, or defaults that happened more than 12-18 months ago).If you can't get a money transfer card, you can use a 0% spending card to mimic its effect. Used carefully, it can help. Here's how...

  The easier-to-get Aqua card gives 0% for six months. Do normal spending (after budgeting) on it, instead of on a debit card. Money will build up in your account, reducing your overdraft day by day. You then have a short respite at 0% to work to clear the card.

  Up to 32 months' 0% spending is available if your credit score's better. Our Eligibility Calculator shows your likelihood of getting Top 0% Cards.

Option 3: Budgeting and help

• Minimise fees. Ask companies you pay to shift direct debits to the end of your working month. If paid on the 25th, aim for the 20th. This artificially boosts your balance for longer, so you're in the red less – but don't spend the cash before the bills fall due.

• Budget. Moving bill dates cuts fees, but won't tackle the overdraft. So sit down and do a budget to find out where you can cut back.

• Stop spending! Easier to say than do. Yet if you're constantly in your overdraft you need to urgently stop spending and reclaim control. It can be done – see our full Stop Spending guide.

• Can't get a better deal or struggling? Ask for help. The Financial Conduct Authority, the banks' regulator, says firms are responsible for ensuring customers are treated fairly. So if you've a big overdraft and you're unable to switch, try calling your bank. You can ask it to waive fees or reduce interest, especially if they're causing problems.

  On this, a Lloyds Banking Group spokesperson said: "We have tailored support in place to support customers who have higher overdrafts, based on their individual circumstances. This may include a review of the options available...which may better meet their underlying borrowing needs."

  If Lloyds, Halifax or Bank of Scotland can't help you find a solution, get free one-on-one debt-counselling help from Citizens Advice, CAP, StepChange or National Debtline. They're there to help, not judge. Full info in Debt Help.