By Oliver Smith on Tuesday 17 December 2019
Overdrafts are getting more expensive for some customers.
In June the FCA said it would call on banks to scrap unarranged overdraft fees and only charge a single interest rate by 1 April 2020 to “fix a dysfunctional overdraft market”.
Therefore Monzo announced it will scrap its daily fixed fee of 50p for its overdraft, and instead move to risk-based pricing with an effective annual rate (EAR) of 19%, 29% or 39% depending on a customer’s credit score.
Monzo is also scrapping its free £20 overdraft buffer which it previously offered to all customers, although the bank still believes 87% of its customers will be either better off or see a monthly charge of less than £1.
“We’re not the only bank making changes to overdraft charges,” explained Starling CEO Anne Boden.
“Most other banks are having to fall in line with the new FCA reforms. But don’t be surprised if you see them presenting their overdraft pricing changes merely as a ‘simplification’ when in fact they also represent a massive increase.”
Both Starling and Monzo remain competitive when compared to many high street banks which have opted to introduce a single overdraft rate of 39.9% for all customers.