How overdraft changes affect you

The big banks are changing the way you pay for going overdrawn, with Lloyds TSB reducing costs for those who slip into the red without permission but charging authorised overdraft customers more, and NatWest and Santander re-vamping their overdraft charges along similar lines.

The changes mean that millions of current account holders need to be check exactly how much they will now pay in charges, so they can avoid any nasty shocks when they dip into the red.

Recent research shows that about a quarter of Britons have paid a penalty charge of some kind on a financial product, due to not fully understanding the terms and conditions.

Here, we go over the changes with a fine toothcomb to ensure that you do not fall into the same trap as a result of the banks’ new charging structures.

Lloyds TSB

Lloyds TSB introduced its new overdraft fees on December 2 last year.

Under the new structure, costs are down for those who exceed their agreed overdraft limits or go overdrawn without permission, but customers who use an authorised overdraft facility now pay more for going into the red.

This is because people in this position now pay a new £5 usage fee every month they go overdrawn, on top of interest at an annual rate of 18.9%. That’s an extra £60 a year for a Lloyds customer who uses his or her overdraft every month.

Borrowers are no longer, however, charged a fee if they go overdrawn by up to £10, while anyone going overdrawn without authorisation now pays the same monthly fee of £5, down from £15.

Daily fees for unplanned overdrafts, which previously ranged from £6 to £20, have also been reduced to between £0 and £10, and the maximum number you can be hit with in any one month has dropped from 10 to eight.

Kevin Mountford, head of banking at, said: "If you go into the red without approval you will now be better off, but unfortunately those who go into their authorised overdraft now pay an additional £5 for the privilege, on top of the interest they are already charged."



The main change for NatWest customers, due to be introduced on February 1, is that the number of charges imposed on customers who go overdrawn without permission is falling from four to two.

From the start of next month, the ‘Maintenance Charge', ‘Paid Referral Fee' and ‘Guaranteed Card Payment Fee' will be replaced with a single daily fee called the ‘Unarranged Overdraft Fee' and set at £6 for each day that the account is in the red by more than £6.

The current ‘Unpaid Item Fee’ will also become the ‘Returned Item Fee’, and will be £6 rather than £5, capped at £60 a month. And interest will no longer be charged on unauthorised overdrafts.

Susie Wands at NatWest said: "These changes give customers more control and make managing their accounts more straightforward."

The bank is also launching an ‘Act Now’ text and email alert service that will warn customers at risk of incurring a fee to pay funds into their accounts. Mountford said: “The new alerts could prove useful for customers who risk slipping into the red due to forgotten payments. However, these changes only affect people who go overdrawn without permission.”


Santander’s planned changes, due to come into effect on March 16, are rather different to those introduced by NatWest and Lloyds.

Designed to align the Spanish bank’s overdraft charges with the former Alliance & Leicester daily fee-charging model, they will see the introduction of three tiers of charges that depend on your loyalty to the bank.

The top tier will be restricted to holders of the Santander Zero Current Account, which rewards customers with a mortgage, investment or £10,000 of savings with Santander with a fee-free overdraft at 12.9% and no charges for payments made or refused due to a lack of funds in the account.

Meanwhile, the second tier will be for those customers who pay at least £1,000 a month into their current accounts, or who pay for packaged accounts such as Santander Reward.

They will pay 50p per day for an arranged overdraft and £5 a day for an unauthorised overdraft, both of which will be capped at a maximum of 10 days a month. Other charges for customers in this tier will include the £10 unpaid item fee and a £5 charge for payments that are covered by the bank despite a lack of funds.

Everyone else will be relegated to the third tier, which means paying 50p per day for an arranged overdraft and £5 for an unauthorised one, capped at 20 – rather than 10 – days a month.

These customers will also pay £25 for payments that are covered or refused by the bank when there is not enough money in the account.
The good news for those in the second and third tiers, however, is that no overdraft interest will be charged on their borrowing.

Nici Audhlam-Gardiner at Santander said: "We think it's important to reward customers who choose Santander as their main financial provider."

What does this mean for me?

If you are a current account customer of one of the three banks, then you need to consider how you use your overdraft, and whether the new charges will cost you more or less.

Lloyds’ customers with arranged overdrafts are now paying more for the privilege, for example. And, given the fact that the banks prefer us to agree overdrafts with them first, that’s a bit of a kick in the teeth.

Anyone unhappy about the changes, or just looking for a cheaper overdraft, should therefore consider switching. Attractive accounts for people with overdrafts include Halifax Reward, which charges £1 a day for authorised borrowing up to £2,500. However, the new Santander overdraft regime is also worth a look if you qualify for the first or second tiers of its new charging structure.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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