Martin Lewis: New Nationwide overdraft rate is “shocking”, but only due to being more transparent
Less than two months after the Financial Conduct Authority (FCA) 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. This means the majority of Nationwide customers who use their overdrafts will be worse off from November.
Martin Lewis, founder of MoneySavingExpert.com says: “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 rate 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.”