MSE News

Santander to scrap unarranged overdraft fees on 123 accounts

Rosie Bannister

Senior Money Analyst

25 January 2018

Santander is to remove all unarranged overdraft fees on its current accounts that have monthly fees, including its popular 123 and 123 Lite accounts – though a small minority could be worse off under changes to its other accounts.

From 10 July 2018, the four million customers with Santander's 123, 123 Lite, Select or Private account will no longer face a hefty fee of £6/day if they bust their overdraft limit.

Santander has told us that despite the removal of unarranged overdraft fees, there'll be no change to the criteria for when you're allowed to go into an unplanned overdraft – ie, any overdraft facility you use that hasn't been previously agreed with your bank. So if Santander allows a particular payment to take you over your agreed limit now, it would still do so from July but you won't be charged.

The bank will also automatically register all current account customers for unarranged overdraft alerts, by text and email, from Friday 2 February. All customers will be notified of the overdraft changes in their February statement.

For tips on how to save money when you're in the red, see our Cut Overdraft Costs guide.

How your unarranged overdraft fees will change

As well as the changes above, Santander is capping unarranged overdraft fees at £50/month for current accounts that don't come with a monthly fee, including the Everyday, Student and Graduate accounts. It will also keep the fee-free buffer if you go into an unarranged overdraft by £12 or less.

Here are what the changes look like for both types of account:

Santander unarranged overdraft fee changes

	Accounts with monthly fee incl 123, 123 Lite and Select		Accounts with no monthly fee incl Everyday, Student and Graduate
	Now	From 10 July	Now	From 10 July
Unarranged overdraft fees (i)	£6/day	No fee	£5-£6/day	£5-£6/day
Paid-transaction fees (ii)	No fee	No fee	£5-£10/payment	£5-£10/payment
Bounced payment fee (iii)	No fee	No fee	£10/payment	£10/payment
Overall monthly fees cap	£95/mth	N/A	£95/mth (iv)	£50/mth (v)
(i) If you're in an unarranged overdraft of £12 or less, you won't incur any usage fees or paid-transaction fees. (ii) A paid-transaction fee is charged when money comes out of your account when you're already in an unarranged overdraft, or pushes you into one. (iii) When the bank refuses to take money that would result in an unarranged overdraft or that would take you further into an existing unarranged overdraft, you're charged a bounced payment (unpaid transaction) fee. (iv) Cap on all arranged and unarranged overdraft fees. (v) Cap only on unarranged overdraft fees.

What about arranged overdrafts?

There are no changes to Santander's arranged overdrafts, which for most accounts have a £12 fee-free buffer. Here's how the fees work above the buffer:

Below £2,000 – £1/day
Between £2,000 to £2,999.99 – £2/day
Over £3,000 – £3/day

There's also a four-month 0% fee period if you've switched to Santander.

Santander's Student current account has a fee-free arranged overdraft of up to £1,500 in years one to three, and up to £2,000 in years four to five, which will remain in place.

If you're regularly in your arranged overdraft, there are cheaper options than Santander, including 0% overdrafts with First Direct and Nationwide – though be aware that a new overdraft is never guaranteed. For full details and more options to slash the fees you pay when you're in the red, see Cut Overdraft Costs and Best Bank Accounts.

Who are the winners and losers?

If you've an account with a fee and you go into your unarranged overdraft, you'll be better off after the changes. For accounts without a monthly fee, the drop in the maximum monthly fee cap to £50 will mean most are better off. Santander tells us that about 400,000 overdraft users will pay less in fees from July.

However, the £95 monthly cap currently in place covers arranged and unarranged overdraft fees meaning some could be worse off under the new cap, as it only applies to unarranged overdraft fees.

For example, if you have an Everyday account and in the space of one month you used £3,500 of an arranged overdraft for 25 days, and then went into an unarranged overdraft for five days, you'd pay £95 in fees. Under the new structure, you'd instead pay £105.

It's worth noting that this is an extreme example, and Santander says the change in the way the cap works could only negatively impact 0.1% of its overdraft users, all of whom will be sent letters outlining the changes and options to transfer to another current account.

What does Santander say?

Reza Attar-Zadeh, head of customer proposition and experience at Santander UK, said: "These changes mean four million adult current account customers will benefit from no unarranged overdraft fees on their accounts. On other accounts, the maximum unarranged fees a customer could pay each month will be almost halved and customers will be automatically registered for unarranged overdraft alerts to help them minimise or prevent such fees.

"Our customers can be confident that we're here to help: we have specialist support teams in place and a range of free tools and services, such as mobile banking and account alerts, so our customers can stay on top of their money."