RBS and NatWest roll out 40% overdraft charges

High street lenders bring in new fees, but could these rates rise even further?

More current account users face higher overdraft fees as RBS and NatWest join other banks in doubling these charges to around 40%.

The two banks previously charged 19.89% plus a £6 monthly flat fee for all arranged and unarranged overdrafts except their Reward Black deal, which had fees of 14.89% plus £6 a month. They now charge 39.49%.

Most high street banks had plans to set their overdraft fees at around 40% from April. These include Santander, Nationwide, TSB, Barclays, HSBC, First Direct, Lloyds Bank and Halifax.

Banks all fell into line with these charges because in April new Financial Conduct Authority (FCA) rules banned them from charging mixed tariffs of percentage and flat fees. The regulator said consumers found these confusing. During 2017 banks made £2.4 billion from overdraft charges. 

The FCA hoped banks would compete with the new, easy-to-understand overdraft fees, and was dismayed when instead lenders announced plans for near-identical charges.

But the rollout of these 40% fees was delayed by the coronavirus pandemic. On 9 April the regulator said banks had to let overdraft users apply for a three-month £500 buffer if they suffered financial hardship due to the virus.

Most banks also voluntarily paused the rollout of higher fees even if customers did not have money troubles related to Covid-19.

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But now banks are starting to raise these fees for all users unless they are still having Covid-related money problems.

A NatWest Group spokesperson says: "Customers who are currently receiving additional Covid-19 support will have that support extended, automatically, for an additional three months. 

"We’ve been working hard to make sure that we have the right support in place for any customers who are negatively impacted by these changes."

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The spokesperson adds NatWest’s new overdrafts are "simple and easy for customers to understand as well as being compliant with all relevant regulations".

There has been much consumer outcry at the 40% rates. Martin Lewis, of MoneySavingExpert, called these new overdraft levels "danger debt".

But banks want to raise these rates even further, even to 50% or 60% on average. according to a banking expert who wishes to remain anonymous.

Rachel Springall, of personal finance experts Moneyfacts, says:

"The current interest rate tariffs that banks and building societies introduced may well change, at the moment they are not too dissimilar to one another and interest rates could rise."

Springall says one of the best current accounts for overdraft tariffs is from Starling Bank, which has one with a 15% rate.

That means if someone borrowed £500 for 15 days it would cost them £3.08.