What do Lloyds Banking group overdrafts cost changes mean for you?

Lloyds Banking group has overhauled its overdrafts costs, meaning the 22m customers of Lloyds, Halifax and Bank of Scotland are facing big changes. For some it can mean paying £100s more a year. Our Money Saving Expert, Martin Lewis, is here to explain what to do, and how anyone with an overdraft can try and cut the cost to zero.

What are the Lloyds changes? Many people have been in touch with me about these changes, some shocked at the cost, like Danny who tweeted “@MartinSLewis @AskLloydsBank new overdraft fees £3.18 per DAY I’m £2,500 overdrawn! Way beyond simple change in terms... HELP!”

In the past many of the Lloyds brands simply charged a range of fees and interest, or a flat fee per day no matter how much you were overdrawn by. Now, there will be a flat rate charge of 1p per £7 overdrawn, which works out to around £1 a day per £700 of overdraft (so around £30 a month if you’re in continually) – and there is no cap to this.

In numerical terms, there are more winners than losers. Though the gains for those who are better off, are smaller than the loses for those who lose out.

- Losers: Those with bigger overdrafts in the thousands, or those constantly in overdrafts in the high hundreds, will usually pay more. For example if you were £2,500 overdrawn at the beginning of the month, under the new charges you’ll be charged £110 by the end of the month, but under the old charges it would have been £60/month with most Halifax accounts or £40/month with most Lloyds and Bank of Scotland accounts.

Also for Bank of Scotland and Lloyds customers if you are continually overdrawn you can still be worse off even for smaller overdrafts – say £500.

- Winners: Those with smaller overdrafts or who previously bust their limit will pay less. For example, £100 overdrawn for a week now costs £1, compared with £7 for a Halifax account and £6 with a Bank of Scotland/Lloyds account before the changes.

The most important thing to do as it’s been running a couple of weeks is to check your statement now and see how you’re doing. Like Helen who tweeted me “Huge thank you to @MartinSLewis (and @kellieann87 for pointing me to him). Will be free of Lloyds crippling overdraft charges in a week! Christmas is no longer cancelled!”

For full help on what to do see Martin’s how to cut your overdraft to 0% guide, yet here’s a brief summary…

Can people shift overdrafts and is it worth it? Yes. If you change bank you should be able to change overdraft, but you will be credit scored – it’s often not too harsh – but you can be rejected or given a low overdraft limit.

In fact if you’re paying any overdraft charges or interest you should be able to cut it. There are three providers right now offering 0% overdrafts, more so two will pay you to get them, which can help clear what you owe.

- Switchers to First Direct get a free £100 and ongoing fixed £250 0% overdraft (15.9% EAR above that). So if you’ve less than £350 overdrawn, switch and after the free cash you’ll only owe £250. Then it’ll be interest free.

- HSBC Advance gives switchers a free £150 (and another £50 if there after a year) and a six-mont 0% overdraft (only do it if you can clear in that time), which can be much larger – it says £1,000 is typical.

- Nationwide's FlexDirect gives switchers a 0% overdraft for a year (50p/day after) – anecdotally limits here can be pretty high too, as mattboliver tweeted me: "@martinslewis Matched my old one – £1,200. Implied I could have asked for more, but the point was I wanted to pay off." Plus if you've a friend who's already got a Nationwide account, you both get £100 if you switch via Nationwide's recommend a friend scheme.

If you can’t get any of those, the regulator the Financial Conduct Authority says banks must ensure its customers are treated fairly. So if you can’t get a better deal elsewhere or are really struggling ask your current bank if it could extend your arranged overdraft (if you think this will help, rather than just get you in deeper), or ask it to waive fees or reduce interest – especially if you're only just managing to keep afloat.

Can you shift overdrafts onto 0% cards? Yes. A few specialist money-transfer cards let you pay cash in to your bank to pay off your overdraft, then you owe them instead – useful for big overdrafts. VirginMoney gives accepted customers 36 months 0% for a one-off 2.9% fee, or if you need slightly longer MBNA is up to 38 months 0%, but with a higher 3.45% fee. Remember these deals are only on specialist cards.

So always repay the monthly minimum or you’ll lose the 0% deal, and clear the card by the end of the 0% period or they jump to the full rate, 20.9% and 22.9% rep APR.

Those are ways to cut the costs of overdrafts, but what do you do to actually manage them?

- A tip to help avoid going overdrawn is ask the companies you pay to shift your direct debits to just before you’re paid. So if you’re paid on the 25th, aim for the 20th. This artificially boosts your balance, so you’re in the red for less time, meaning fewer charges – but budget carefully and don’t forget those bills are coming.

- Do a proper budget. Look at your bank statements over the past year – you must look at the full year not just a couple of months, so it accounts for big one-off spends like birthdays, car insurance, holidays etc – and add up everything coming in and going out. Then look at where you can cut back on your spending.

Also if it’s easier organise incoming cash and physically move it into different pots, at the start of the month so you're not tempted to spend unnecessarily. For example when it's summer holiday time, you can only spend what's in your 'holiday pot' rather than whatever is in your bank account plus your overdraft.

- Beware of busting your overdraft limit. Charges for this are hideously expensive. Even payday loans are usually cheaper than huge fees you’re charged just for going a penny over.

- Struggle to control spending? Shift to a no-overdraft account. Basic bank accounts provide a no-frills, no-overdraft current account service. They used to charge fees if you spent more than you had, eg, for unpaid direct debits, but since January last year those have stopped. If you spend when you’ve not got money, it’ll still be rejected, but now there’s no charge. Options include Barclay’s Basic Current Account and[](http://www.co-opbank.co.uk/)Co-op Bank’s Cashminder.

- If you’re struggling to get out of the bank charge circle ask your bank to refund the charges. While it’s harder now, reclaiming bank-charges can still be done. But you need to be in genuine financial hardship to claim. If that’s you, write a formal complaint to the bank and explain how the charges caused you hardship, and if that fails go to the free Ombudsman. There are free downloadable template letters online to help.

There are no guarantees, but it works for some, like Claire, who emailed: “I’ll get six years of charges back and a goodwill £70 on top... total £865. Thanks Martin”. And even if you aren’t in hardship, but you go overdrawn for the first time, it’s still worth asking your bank if they’ll refund the charges as a one-off good will gesture. They may just do.