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Barclays announces overdraft shake-up with interest rates of 35%

Barclays will be replacing its daily overdraft fees with a single interest rate of 35% from March – we've full info on whether you'll pay more or less after the changes.

At the moment, Barclays charges blanket daily fees to use its arranged overdraft facility.

It currently costs 75p per day for overdrafts of up to £1,000, £1.50 per day for overdrafts between £1,000 and £2,000, and £3 per day for overdrafts of over £2,000.

But from 22 March 2020, it will charge a single interest rate of 35% on any arranged overdraft.

Barclays is also slashing fee-free overdrafts, which currently range from £200 to £1,000, on its premier and packaged accounts, meaning some who currently use their overdrafts for free will pay interest from March. The exception is Barclays' student accounts – these have a £3,000 fee-free buffer, which won't be changing.

Barclays says it will also be keeping its £15 buffer, which stops customers being charged if they accidentally dip into their overdrafts.

We've full analysis on how the changes will affect what you pay below.

Under new rules which come into effect in April, banks must charge a single interest rate for arranged overdrafts. The announcement from Barclays follows similar moves from Nationwide, First Direct, HSBC, M&S Bank, RBS and NatWest, which will all be hiking interest rates to about 40%.

Barclays doesn't offer an unarranged overdraft facility, and says it will return any transaction that would take a customer over their arranged overdraft limit.

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.

Will I pay more or less to use my overdraft?

Because of the way Barclays currently tiers its charges depending on the size of your overdraft, whether you win or lose from this policy will depend on how much you borrow as part of your overdraft – and it's not always straightforward.

To give you an idea of the impact, we've explained below the effect on a customer with a standard Barclays bank account who's constantly overdrawn by a certain amount for seven days. Note though these figures only apply in that specific scenario, so the impact may be different if your circumstances vary:

  • You'll pay LESS if overdrawn by up to around £1,800. For example, an overdraft of £100 will cost 57p over seven days, whereas at the moment it would cost £5.25.

  • You'll pay MORE if overdrawn by between about £1,800 and £2,000. For example, an overdraft of £1,900 will cost £10.93 over seven days after the changes, compared to £10.50 at the moment. 

  • You'll pay LESS if overdrawn by between about £2,000 and £3,700. For example, an overdraft of £2,500 will cost £14.38 over seven days, compared to £21 currently.
  • You'll pay MORE if overdrawn by more than about £3,700. It's unlikely many will have overdrafts this big, but if you do, you'll pay more. For example, an overdraft of £4,000 will cost £23 over seven days, compared to £21 at the moment.

If you have a packaged or premier Barclays account, the maths will be different – and customers who currently stay within their fee-free amounts could pay extra, as these allowances are being reduced. For example, if you have the Barclays premier account, your fee-free amount is being reduced from £1,000 to £500 from March. If you have a packaged, premier world or platinum account, your interest free amount is reducing to £100. 

How to beat the rate hikes

If your overdraft is set to get more expensive, this could be a wake-up call to reduce costs. And even if your overdraft will be cheaper after the changes, it's likely you could still save more.

Your options will generally depend on how big your overdraft is:

  • Overdraft of up to £500? Consider switching to the First Direct current account*, which offers many a £250 interest-free overdraft, and currently also pays a £100 switching bribe. So if your overdraft's up to £350, it pays some off and the rest is interest-free.

    On any overdraft borrowing above this up to a standard arranged overdraft limit of £500, you'll pay 39.9% interest (though this is after First Direct's changes come into effect – until 14 March 2020 you'll pay 15.9%). But even so, you'll still likely save by only paying interest on part of your overdraft.
  • Overdraft of up to £1,500ish? The Nationwide FlexDirect* account offers a year's 0% overdraft, as long as you haven't had a FlexDirect account before – and if you get a friend with a Nationwide account to refer you before you switch, you'll both receive £100.

    There's no guaranteed overdraft limit though, as it'll be based off your credit score – so while it could be bigger than the £250 at 0% offered by First Direct, it could also be smaller than your current limit.

    And remember that the 0% rate will only last for 12 months after you open the account, so you should see this as a temporary respite to sort out your finances. Once the year's up, you'll be charged 39.9% EAR interest on the entire overdraft.

  • Very large overdraft? If your overdraft is larger still, it's unlikely you'll be able to cover all of it with a 0% bank deal, but a few specialist credit cards offer '0% Money Transfers'.

    This is where, for a one-off fee of about 3-4% of the value of the transfer, the card pays cash into your bank account. You can use this to clear your overdraft, so you owe the card instead at 0%. You can currently get up to 28 months at 0%. For a full rundown, see the Money Transfers guide.

For full help, see Martin's Overdraft prisoners blog and see our How to cut your overdraft costs guide.

What does Barclays say?

A Barclays spokesperson said: "We want to help our customers manage their money with transparency and ease.

"This is another step towards offering our customers greater control over their finances, alongside our existing alerts and the huge range of tools within our app."

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