The Lloyds Banking Group – which owns Bank of Scotland, Halifax and Lloyds – is planning big changes that could see overdraft interest rates almost double for some customers and halve for others. Account holders could soon find that the interest they are charged on their overdraft is hiked from 27.5% to 49.9%, or slashed from 49.9% to 19.9%. What happens to individual overdraft rates will depend on how that person fares in the banking group’s ‘affordability assessment’. Read on to find out how you could be impacted.
Why are Lloyds Banking Group overdrafts changing?
This change is part of a planned restructuring of overdraft charges that would see customers placed into different tiers based on its affordability assessment criteria. This means that customers with bad credit can expect to pay more and those with good credit can expect to pay less. The decision on which rate tier is applied to an overdraft will be based on the customer’s credit history and their past relationship with any Lloyds Banking Group brands.
Current overdraft rates
Currently, customers with a Lloyds, Halifax or Bank of Scotland overdraft pay 39.9% or 49.9%, with some Club Lloyds customers currently only paying 27.5%.
- 27.5%
- 39.9%
- 49.9%
New overdraft rates (from August 2024)
The new system will initially introduce six tiers, to be cut down to four after six months. These tiers are 19.9%, 29.9%, 34.9% (rising to 39.9% after six months), 39.9%, 44.9% (rising to 49.9% after six months), 49.9%.
- 19.9%
- 29.9%
- 34.9% (Temporary rate - rising to 39.9% after six months)
- 39.9%
- 44.9% (Temporary rate - rising to 49.9% after six months)
- 49.9%
What do the changes mean for Lloyds, Halifax and Bank of Scotland customers?
This all means that a Lloyds customer with a Club Lloyds bank account could potentially see the interest on their overdraft rise from 27.5% to 49.9%. Of course, it also means that someone currently paying 49.9% could see that rate drop. It is possible that some customers will be moved to the temporary 34.9% or 44.9% tiers to ease the transition to a higher rate.
Anyone who is set to be charged a higher rate will be given 60 days' notice of the change, due to come into effect from August 2024. Customers who are having their rates cut will get seven days' notice.
At this stage, it is difficult to tell how likely it is that someone's rate will go up or down. However, it is important to note that Lloyds Banking Group has claimed that "the vast majority" of arranged overdraft customers will have their rate maintained or cut.
Are there cheaper options available?
An overdraft is not the best or cheapest borrowing option for everyone. You may find that a 0% purchase credit card or a money transfer credit card are better ways of spreading the cost of a big purchase. For consolidating debt, you should consider a money transfer credit card or a 0% balance transfer credit card.
If the security of an overdraft buffer is important to you, consider switching to a current account that offers a 0% interest overdraft. Some banks will even pay you to switch your current account to them, which is usually a quick and easy process.
Anyone struggling to pay essential costs and who is reliant on their overdraft should reach out to their bank and get independent free debt help. You should be able to restructure your debt into a more affordable plan, though you may need to raise a formal complaint to get the support you need. Not taking steps to help people in financial difficulty would likely put a bank in breach of the Financial Conduct Authority’s ‘Consumer Duty’ rules, so it should be willing to help you get back on track, even if it needs a bit of a push. Organisations such as Citizens Advice, National Debtline or StepChange all offer free, independent support to help you get on the path to being free of problem debt.
