Majority of consumers don't understand overdraft costs according to new study from Yolt

By Aisling Finn on Monday 6 July 2020

Digital Banking

According to the study, nearly a third of UK consumers use their overdrafts to manage financially.

Majority of consumers don't understand overdraft costs according to new study from Yolt
Image source: Pauline Van Brakel/Yolt

Nearly half (42 per cent) of UK consumers don't know they are being charged to use their overdrafts according to new research from financial management app Yolt.  

The research showed that the majority of UK consumers (60 per cent) regularly dip into their overdraft facility but are unaware of how much they are being charged to do so.  

Just over a year ago, the Financial Conduct Authority (FCA) announced that changes to the way overdrafts are regulated would be introduced in April 2020.  

The new regulations could see banks charge up to 39.9 per cent Effective Annual Rate (EAR) on unarranged overdrafts.  

With the spread of the coronavirus, the FCA told banks to stop the introduction of the higher overdraft fees to protect the financially vulnerable.  

However, on Friday last week, the FCA announced that banks could reintroduce the higher fees.  

According to the study, which was carried out on over 2,000 nationally representative participants, over a third (34 per cent) of people rely on their overdrafts at least once a month and nearly three-quarters of us (72 per cent) fall into our overdrafts at least once a year.  

Perhaps more concerningly, nearly a third of consumers (32 per cent) say they rely on their overdrafts to manage financially.  

Pauline Van Brakel, chief product officer at Yolt, said: “The hike in overdraft interest rates is a disappointing and unwelcome sting for many people who are already feeling the financial impact of COVID-19.”  

“It’s worrying to see a large proportion of people are unaware that their overdraft fees may increase, some close to 40%, and I suggest people use the coming days to double-check these potential changes with their bank, to assess how it may impact them.”  

With the economy not back up and running yet and millions still without a job, the reintroduction of the higher fees could be particularly worrying for some.  

Sign up for our newsletters

Your daily 7am download of all things alternative finance and fintech.

Fintech and alternative finance headlines with an exclusive Editor's Note each week. Delivered Monday at midday.

AltFi's new weekly US newsletter breaking down the ins and outs of America's burgeoning fintech sector. Delivered Monday 9am EST/ 6am PST.