Lloyds Banking Group announces that millions will face higher overdraft fees

Lloyds Banking Group is gearing up for a major overhaul of its overdraft charges, set to impact millions of customers at Lloyds Bank, Halifax, and the Bank of Scotland – and it could see customers paying 10 per cent more to access their overdraft. Currently, the standard interest rate for a Lloyds overdraft stands at 39.9 per cent, but some, like Club Lloyds account holders, enjoy a reduced rate of 27.5 per cent provided they pay a monthly fee (waived if over £2000 is deposited each month).

However, come August, these rates could jump as high as 49.9 per cent, marking a steep 10 per cent increase for certain customers. A Lloyds Banking Group spokesperson shed light on the upcoming changes, stating: “We are writing to our customers to let them know we’re introducing new interest rate tiers on our overdrafts.”

They added, “The changes mean many will continue to pay the same or less than they do today, while some may see an increase.”

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The revamped system will feature four distinct overdraft tiers:

• 19.9%
• 29.9%
• 39.9% (the rate most customers are currently on)
• 49.9%.

Some of the increases will be introduced in two stages:

• People who are seeing an increase from 39.9% to the new highest rate of 49.9% will have a 5% increase in August and then another 5% increase in January 2025
• Club Lloyds customers who are being switched to a 39.9% rate will see a rise of 7.5% in August and another 5% in January 2025.

The bank will determine the specific criteria for each tier, considering the credit information available on a customer and their monthly account activity, making it tough for customers to predict which rate they may be assigned until Lloyds get in touch, reports the Manchester Evening News.

An arranged overdraft is a facility you can borrow money up to a pre-agreed limit with your bank based on your financial situation and prior arrangement; you’ll be charged interest at the end of each day you use it without any fee for setting it up. However, if you exceed this amount and enter an un-arranged overdraft you could find costs spiralling even further with penalty fees whacked on top.

The accounts set to be affected by the upcoming changes include:

Bank of Scotland

• Platinum Account
• Silver Account
• Classic Account

Lloyds

• Classic Account
• Club Lloyds Account
• Silver Account
• Club Lloyds Silver Account
• Club Lloyds Platinum Account

Halifax

• Ultimate Reward Current Account
• Reward Current Account
• Current Account

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What steps can you take if you are impacted by these changes?

If you are one of those customers belonging to the Lloyds Banking Group who are going to be affected by these changes, fret not because there’s assistance available to help sort out your overdraft fee alternatives.

Primarily, you could consider escaping from using an overdraft altogether, although this isn’t always possible depending on your financial circumstances. Alternatively, think about transferring bank accounts to a different organisation offering a lower interest rate charge – some banks may even give you a cash bonus for switching your current account, with the top deals at the moment noted in the Current Account Switch Service (CASS).

Andrew Hagger from Moneycomms, a financial expert, explained: “Most banks now charge between 35% and 40% for agreed overdrafts, but depending how much you borrow, First Direct may be an option worth considering as the first £250 of any agreed overdraft is interest free.”

Switching to a credit card for short-term spending is another option, although this could potentially lead to more debt. Generally, many cards offer lower interest rates than overdrafts, but they often have much higher spending limits which could tempt overspending.

However, if you can pay off the balance in full each month, they could be a crucial lifeline to help combat spiralling overdraft fees.