Banks in the UK are waiving overdraft fees or increasing fee-free buffers to give customers breathing space during the outbreak.
Barclays is the latest bank to waive interest on overdrafts for all UK customers to help those struggling financially owing to coronavirus.
From 27 March until the end of April, the bank will not charge customers for using an agreed overdraft. The interest will be waived automatically, so that customers do not need to take action to get the benefit.
On 22 March, Barclays introduced a new single overdraft interest rate of 35% to comply with new regulations coming in from the Financial Conduct Authority (FCA). Barclays' flat fee replaced daily arranged overdraft charges ranging between 75p and £3.
Gillean Dooney, managing director at Barclays, says: “It’s crucial we offer the right support to our customers through this challenging time.
"We have therefore decided to waive all overdraft interest until the end of April, meaning there will be no charges for customers to use their arranged overdraft."
What about the other banks?
Lloyds, Halifax and Bank of Scotland this week announced that they will give all customers a £300 interest-free overdraft buffer.
This means that customers will be able to use the first £300 of their overdraft without paying any interest.
The change will come into effect automatically from 6 April and run for three months until 6 July.
Currently, all three banks charge the following arranged overdraft fees:
- 1p per day for every £6 borrowed up to £1,250
- 1p for every £7 borrowed between £1,250 and £2,500
- 1p for every £8 borrowed over £2,500
From 6 April, Lloyds, Halifax and Bank of Scotland will charge a single overdraft fee of either 27.5%, 39.9% or 49.9%, depending on the account you have and your credit score.
HSBC will also waive interest on the first £300 of its arranged overdrafts from 26 March for three months. The bank introduced its single overdraft fee of 39.9% last year.
Vim Maru, retail director at Lloyds Banking Group, says: “The introduction of the £300 interest-free overdraft will give our customers some important breathing space at this difficult time.”
A spokesperson from HSBC says: “We are here for our customers in these truly extraordinary times.”
Why are banks introducing a single overdraft fee?
Lenders make more than £2.4 billion from overdrafts each year, with around 30% of this coming from unarranged overdraft charges, according to the FCA.
The financial watchdog unveiled new plans to overhaul the industry in 2019.
From 6 April 2020, banks and building societies will no longer be able to charge higher interest rates on unarranged overdrafts than they do on arranged ones.
They will also be banned from charging additional fixed fees. Instead, lenders will have to use a single interest rate.
This article was first written by our sister magazine Moneywise.