MSE News

HSBC to hike overdraft fees from March

HSBC to hike overdraft fees from March

All HSBC customers will see their arranged overdraft interest rates shoot up from next March, following a similar move from Nationwide earlier this year, MSE can reveal.

Current rates are between 9.9% and 19.9% EAR, but from next year all account holders will be charged a blanket rate of 39.9% EAR for all arranged overdrafts.

Update Mon 9 Dec: First Direct and M&S Bank, the other banks in the HSBC group, have also announced they are raising their overdraft interest rates to 39.9% from March. Full details in our First Direct and M&S to follow HSBC news story.

While the bank will introduce an interest-free £25 buffer on some of its most popular accounts – providing customers with some leeway – the changes mean that it's likely the majority of HSBC customers who have gone into their arranged overdraft will be worse off when the new rates come into effect.

The interest-free £25 buffer will be available on 'Bank Account', 'HSBC Advance', 'Bank Account Monthly' and the no longer sold 'Current Account'. 'Premier' customers will have £500 interest-free, and Jade customers £1,000. Student and graduate accounts will continue to have 0% overdrafts up to an agreed limit.

Rules announced earlier this year mean by April 2020 banks must scrap unarranged overdraft fees, and charge a single interest rate for arranged overdrafts.

In light of this, HSBC is scrapping its £5 daily usage fee for unarranged overdrafts and reducing the maximum monthly cost for using one to £20.

If you've got an overdraft, see our Cut Overdraft Costs guide to see if you can get costs down, even as low as 0%. If you're struggling, see Martin's blog: Are you an overdraft prisoner? How to escape it.

How are overdraft fees changing?

At the moment, HSBC charges varying overdraft fees depending on which account you have. A table of all the different fees can be seen below:

How are overdrafts changing?

Account Current cost of arranged overdrafts Cost of arranged overdrafts from March 2020 Current cost of unarranged overdraft (monthly maximum charge) Cost of unarranged overdraft (monthly maximum charge) from March 2020
HSBC Bank Account

19.9% EAR variable

39.9% EAR variable £5 daily fee to a monthly maximum charge of £80
No fee up to £25, monthly maximum of up to £20 after that
HSBC Advance Bank Account

17.9% EAR variable

39.9% EAR variable £5 daily fee to a monthly maximum charge of £80
No fee up to £25, monthly maximum of up to £20 after that
HSBC Graduate Bank Account
19.9% above entitlement 39.9% EAR variable £5 daily fee to a monthly maximum charge of £80
Monthly maximum of up to £20 after that
HSBC Premier Bank Account

0% EAR variable on the first £500

11.9% EAR on the rest

39.9% EAR variable 11.9% EAR variable to a monthly maximum of £500 on the unarranged overdraft
Monthly maximum of up to £20
Jade by HSBC Premier Bank Account

0% EAR variable on the first £500

9.9% EAR on the rest

39.9% EAR variable 9.9% EAR variable to a monthly maximum of £500 on the unarranged overdraft
Monthly maximum of up to £20
Current Account
19.9% EAR variable
39.9% EAR variable £5 daily fee to a monthly maximum charge of £80
No fee up to £25, monthly maximum of up to £20 after that
Home Management Account
19.9% EAR variable
39.9% EAR variable £5 daily fee to a monthly maximum charge of £80 Monthly maximum of up to £20

From 14 March 2020, you'll be charged 39.9% EAR variable whether you have an arranged or unarranged overdraft. The monthly maximum charge for using the unarranged overdraft will be reduced to £20.

'Is this the new normal?'

MoneySavingExpert.com banking editor Helen Saxon said: "Both of the first two current account providers to announce changes have moved overdraft interest rates to around 40%. We now have to wonder if this is the new normal.

"It's a definite step forward to cut punishing overlimit fees and to make overdraft costs more transparent. But this change will actually make most people who are in their arranged overdraft, and who owe more than £25, worse off – whichever HSBC account they hold.

"Fortunately though, there are still banks out there offering lower overdraft rates – at least for now. If you're hit by HSBC's changes, see if you can switch to an account with a cheaper overdraft."

How to beat the rate hikes

If you're currently in your overdraft, there are several ways you can avoid rate hikes, including:

  • Switch to a 0% overdraft. The irony is that while First Direct and Nationwide have hiked standard overdraft rates, they have some of the best 0% intro deals for new customers. So if you need an overdraft, it's worth considering these banks. For more info, see top overdrafts.

  • Shift your overdraft to a special 0% credit card – good for bigger overdrafts. A few 0% cards offer money transfers. It simply means they pay cash directly into your bank account, and then you owe the card instead, but at 0% interest. So you could use these cards to clear your overdraft for a one-off fee of 2-4% of the amount shifted. You have to do it right though, so read our full best buys and instructions via the link above.

Plus, see our How to cut your overdraft costs guide for more cost-cutting tips.

What does HSBC say?

HSBC UK's head of lending and payments Madhu Kejriwal said: "An overdraft gives people a bit of flexibility with their finances, especially if there is an unexpected cost or emergency repair required. The new £25 buffer we are introducing will also give people some peace of mind that a small miscalculation on spending won't incur overdraft charges.

"By simplifying our overdraft charging structure, we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions."