Nationwide to hike overdraft fees for majority of customers
Less than two months after the financial regulator announced that fixed daily and monthly overdraft fees will be replaced with a single interest rate, Nationwide has announced its rate will be a whopping 39.9% APR – meaning the majority of its customers who use their overdrafts are set to be worse off from November.
Last month, the Financial Conduct Authority (FCA) said that by April 2020 banks must scrap unarranged overdraft fees, and charge a single interest rate for arranged overdrafts. Nationwide has now announced its new rate.
From 11 November 2019, if you've a FlexDirect, FlexPlus or FlexAccount, you'll be charged a flat rate of 39.9% APR interest for arranged overdrafts, where you're within an agreed overdraft limit.
The only exception will be new customers opening a FlexDirect account, who'll still get a 12-month fee-free arranged overdraft as they do now. If you currently have a 0% overdraft on your FlexDirect account, this will stay until the end of your 12-month period.
All fees for unarranged overdrafts, where you go over your limit, are also being removed from 11 November.
After the changes, the majority of Nationwide customers who use their overdrafts are set to be worse off – the building society says that based on overdraft usage for the last six months, two-thirds would be worse off under the new system. Of those worse off, three-quarters would pay up to 20p a day extra, so up to £73 a year.
Martin: 'All overdraft providers will have to charge via APR – so comparisons will now be easier'
Martin Lewis, founder of MoneySavingExpert.com, said: "On the surface, Nationwide's new standard overdraft rate is shocking. Its 39.9% APR is far more than a high street credit card – more even than the hideous rates that most store cards charge – and roughly similar to the rates charged for those with some of the worst credit scores, if they're accepted for plastic.
"Yet while this looks like a horridly expensive change by the country's biggest building society, in truth overdraft charges have been hideous for a long time.
"Nationwide currently charges 50p a day on major accounts, and per-day charges – especially for those with smaller overdrafts – can have effective equivalent APRs higher even than the scourge that is payday loans.
"So the shock is more due to the fact the costs are now more transparent and easier to compare. And while Nationwide is just ahead of the pack in doing this, new rules by the regulator the FCA mean all overdraft providers will have to charge via APR – so comparisons will now be easier.
"For existing Nationwide customers though, there are winners and losers. Those with smaller overdrafts who are currently being charged will gain, as the cost is directly in proportion to the amount they're overdrawn.
"Those with overdrafts over £450 - £550 will start to pay more, and substantially more for bigger overdrafts. If you're one of those people, it's worth looking at trying to pay down your overdraft if possible, or look at other options such as using a specialist money transfer credit card to shift the balance to 0% debt."
Will I be worse off?
The changes apply to new and existing customers, who will start receiving letters or emails about them from Thursday 1 August.
Under the new charging structure, whether or not you'll be worse off depends on what type of account you have and how you use your overdraft:
- If you have a FlexDirect account, currently there's a £10 buffer and above that you pay 50p a day for any arranged overdraft borrowing, outside of any fee-free periods.
From 11 November, the £10 buffer is being removed and the new 39.9% APR rate kicks in – which means you'll be worse off if constantly overdrawn by less than £10 or by more than about £460. If you only occasionally dip into your arranged overdraft, the point at which you'll be worse off depends on how long you're overdrawn for – eg, if you're overdrawn for one day you'll be worse off if it's by less than £10 or more than around £550.
- If you have a FlexPlus account, currently you don't pay anything up to £250, and above that pay 50p each day.
From 11 November, the £250 buffer is being removed and the new 39.9% APR rate kicks in – which means you'll be worse off if constantly overdrawn by less than £250 or by more than about £460. If you only occasionally dip into your arranged overdraft, the point at which you'll be worse off depends on how long you're overdrawn for – eg, if you're overdrawn for one day you'll be worse off if it's by less than £250 or more than around £550.
- If you have a FlexAccount, you'll be worse off under the changes as the interest rate is being hiked from 18.9% EAR to 39.9% APR. For example, if you borrowed £1,000 for one month, your charges would go from about £15 to £28 a month.
- If you've got any other Nationwide current account, you'll see no change. There are no changes to arranged overdrafts for the FlexStudent, FlexGraduate or FlexOne accounts, which are all fee-free.
- If you go into your unarranged overdraft, you'll be better off as all fees, which could be up to £5 a day plus £5 for each payment (capped at £50 a month), for this are being removed. Of course, if you go into your arranged overdraft you could still incur higher fees for the arranged overdraft after the changes, though it's unlikely you'll be worse off overall.
What else is changing?
As well as the move to charging a flat interest rate, Nationwide is also changing the following:
- All fees for unarranged overdrafts are being removed. This includes paid and unpaid item fees, which are charged when a transaction takes you into an unarranged overdraft. Nationwide says you'll no longer be able to go into an unarranged overdraft at all, apart from in a few cases, where you won't be charged at all.
- More text alerts. Nationwide says this will help people better manage their money.
What does Nationwide say?
A spokesperson said: "We've proactively engaged with the FCA so the changes reflect the ambitions of their High Cost of Credit review, which requires all overdraft providers to make a range of changes by the April 2020 deadline.
"We are confident that these changes, which will be live from November, will set a new market benchmark for simplicity, transparency and control for members."