After a temporary reprieve, banks are set to start doubling the interest they charge people on their overdrafts.
From Thursday, 9 July, rates will start shooting up to almost 40% – more than twice as much as they are now.
On top of that, the £500, interest-free buffer in place at major banks will be removed unless you call to tell them you’re struggling as a result of coronavirus.
The move comes after an update from regulator, the FCA, that said measures put in place to help people struggling with the financial effects of coronavirus would change.
Sarah Coles, Hargreaves Lansdown personal finance analyst, said: “The FCA has given the go-ahead for chilling overdraft hikes from the big banks.
“It’s a bitter bow for borrowers who face a bleaker future.”
At the start of lockdown, the watchdog said banks weren’t allowed to increase overdraft costs, and had to give people in need a £500, interest-free, buffer.
Most responded by rolling this £500 out to everyone, while other banks scrapped interest and fees entirely for people in the red.
But now, these measures will only apply to people who have spoken to their provider and asked for help.
That means rates will shoot up for people in the red, with banks finally able to bring in the 40% rates they had planned.
This is when the changes will kick in:
Customers of Barclays currently have a £750 interest-free overdraft and a rate of 19.51% interest on balances over that.
That expires on 9 July.
Afterwards, rates of 35% will be applied to overdrafts – although there are no no fees or charges apart from that.
Lloyds won’t be increasing anyone’s rates, but will be scrapping its £500 interest-free buffer on July 9.
Don’t think it’s a let off, though, with changes in April seeing the bank implement overdraft rates of 27.5% for Club Lloyds members, and 39.9% for Classic and Platinum members.
Club members could see an increase in costs from September too, with the £3 monthly fee making a comeback for people not paying enough cash in each month to escape it.
Santander was charging people £1 a day for being in the red, it planned to change that to 39.9% interest instead from April.
But as a result of coronavirus, the bank said it would introduce a £500 interest free overdraft buffer for three months, and have a temporary discount on standard overdraft interest rates, set at 19.9%.
That deal is set to expire on 9 July, although there is a chance it will be extended.
A spokeswoman from Santander told Mirror Money: “We welcome this clarity from the FCA, and are working through their directions. We remain committed to supporting our customers through this unprecedented time.”
RBS and NatWest introduced at £500 interest-free buffer and reduced rates to 19.89% at the start of the crisis.
That deal is set to expire on 14 July, with rates rising to 39.49% on most accounts.
Reward Black customers who are currently paying 14.89% will see their rates rise to 19.49%.
An RBS spokeswoman told Mirror Money: “We welcome this clarity from the FCA, and are working through their directions. We remain committed to supporting our customers through this unprecedented time.”
Nationwide cut its overdraft interest rates to 18.9% during the coronavirus crisis.
That rate is set to more than double to 39.9% on 17 July as things stand, unless you inform them you’re struggling financially as a result of the virus.
A spokeswoman told Mirror Money: “We are currently reviewing the guidance provided by the FCA and will confirm our plans once confirmed. The Society will continue to offer 0% interest holidays to members financially affected by Covid-19.”
HSBC told Mirror Money that current support packages will stay in place until August 30.
These include a £500, interest free overdraft buffer and a reduced interest rate of 19.9% on any amounts over this.
However, from August 31 onwards, the buffer is vanishing and the overdraft doubling to 39.9%.
An HSBC UK spokesman said: “We are proud to have been able to support millions of our customers tackle the financial impact of Covid-19 across our range of products from the start of the pandemic, and we remain committed to helping them during this time.”
He added: “When reverting off the temporary arrangements on 30 August, Bank Account and Advance have a £25 interest-free buffer and Premier is £500.”