HSBC - 40% interest on overdrafts
Discussion
So it appears the banks are about to start fleecing people for being in their overdraft, HSBC are leading the way! Over the last 2 years with having to fork out full fees at nursery, the bottom of my agreed overdraft became my 0 point, I always avoided going outside of the unarranged overdraft to avoid fees and in fairness to HSBC they did give you till the end of that evening to replace any funds that fall into an unarranged agreement before incurring the £5 charge.
To be honest I'm sure nobody wants to be in their overdraft so this just feels like another kick a man whilst he's down opportunity.
To be honest I'm sure nobody wants to be in their overdraft so this just feels like another kick a man whilst he's down opportunity.
Whilst a headline rate of 40% may sound bad, it’s actually much better and clearer than what was going on before...
That 40% is APR (charged over a year), so if you borrow £100, you don’t pay £40 back at the end of the month. you pay back MUCH less.
Whereas previously a set £5 charge per day of being overdrawn, regardless of amount, meant some people were paying interests of 1000%+ APR, rates that would make payday loans company blush.
Additionally, using money that isn’t yours is expensive. Overdrafts are one of the most expensive forms of borrowing. Get a credit card.
That 40% is APR (charged over a year), so if you borrow £100, you don’t pay £40 back at the end of the month. you pay back MUCH less.
Whereas previously a set £5 charge per day of being overdrawn, regardless of amount, meant some people were paying interests of 1000%+ APR, rates that would make payday loans company blush.
Additionally, using money that isn’t yours is expensive. Overdrafts are one of the most expensive forms of borrowing. Get a credit card.
From something I saw yesterday c2/3 of people will actually pay a lot less, as has been said.
The headline is just to get people frothing, unduly.
Also...
To address this the FCA is proposing the following radical changes to the overdraft market:
Ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges.
The headline is just to get people frothing, unduly.
Also...
To address this the FCA is proposing the following radical changes to the overdraft market:
Ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges.
Unfortunately for me, when LLOYD's did this a couple of years back I ended up paying hundreds a month in £5 charges and interest and other crap.
The issue for me was that, as a previous poster I started using the Overdraft limit as my £0. Bad move, but the let you do it, and had no intention of stopping you!
I phoned up LLOYDS and told them to give me a way out of it, they converted the overdraft into a personal loan, and I paid the lot back at 5% or whatever it was rather than the1000% the charges were being charged at.
LLOYDS said that 95% of customers would save, the 5% got stung. My view is they need to offer that 5% a way out, seeing as they are supposed to be 'responsible' lenders.
The issue for me was that, as a previous poster I started using the Overdraft limit as my £0. Bad move, but the let you do it, and had no intention of stopping you!
I phoned up LLOYDS and told them to give me a way out of it, they converted the overdraft into a personal loan, and I paid the lot back at 5% or whatever it was rather than the1000% the charges were being charged at.
LLOYDS said that 95% of customers would save, the 5% got stung. My view is they need to offer that 5% a way out, seeing as they are supposed to be 'responsible' lenders.
As has been said, I'm sure this will save most people money.
I'm fortunate enough to only end up in my overdraft if i cock up with a cash transfer or something like that, it happens occasionally and if it goes un-noticed I could be paying £5 for the privilege of £10 worth of borrowed money for a few days!
I'm fortunate enough to only end up in my overdraft if i cock up with a cash transfer or something like that, it happens occasionally and if it goes un-noticed I could be paying £5 for the privilege of £10 worth of borrowed money for a few days!
Greshamst said:
Whilst a headline rate of 40% may sound bad, it’s actually much better and clearer than what was going on before...
That 40% is APR (charged over a year), so if you borrow £100, you don’t pay £40 back at the end of the month. you pay back MUCH less.
Whereas previously a set £5 charge per day of being overdrawn, regardless of amount, meant some people were paying interests of 1000%+ APR, rates that would make payday loans company blush.
Additionally, using money that isn’t yours is expensive. Overdrafts are one of the most expensive forms of borrowing. Get a credit card.
You only get charged £5/day IF you go outside of your agreed limit. At the moment my APR is 17.8% with HSBC...so actually 40% is a lot higher for me and will cost me more, not save me money. If you did go outside your overdraft agreement they used to send you a text and gave you a few hours grace to repay it before the £5 charge was applied. That 40% is APR (charged over a year), so if you borrow £100, you don’t pay £40 back at the end of the month. you pay back MUCH less.
Whereas previously a set £5 charge per day of being overdrawn, regardless of amount, meant some people were paying interests of 1000%+ APR, rates that would make payday loans company blush.
Additionally, using money that isn’t yours is expensive. Overdrafts are one of the most expensive forms of borrowing. Get a credit card.
I already have a credit card...and when I setup my overdraft agreement with HSBC there was no discussion of them hiking the rate to 40% to accommodate people that went outside of their agreed limit or not setting an overdraft up in the first place.
super7 said:
Unfortunately for me, when LLOYD's did this a couple of years back I ended up paying hundreds a month in £5 charges and interest and other crap.
The issue for me was that, as a previous poster I started using the Overdraft limit as my £0. Bad move, but the let you do it, and had no intention of stopping you!
I phoned up LLOYDS and told them to give me a way out of it, they converted the overdraft into a personal loan, and I paid the lot back at 5% or whatever it was rather than the1000% the charges were being charged at.
LLOYDS said that 95% of customers would save, the 5% got stung. My view is they need to offer that 5% a way out, seeing as they are supposed to be 'responsible' lenders.
Lloyds were terrible. I remember back around 2009 when my business went tits and I was on my arse and potless I had a Direct Debit for £40 go out that I'd failed to cancel and no money in the bank. So the DD went unpaid and Lloyds then charged me £40 for not paying it which put me in the exact same position as if they had paid it, £40 overdrawn! They then proceeded to charge me £15 a day for the maximum of 10 days (or whatever the system was back then). I rang them up numerous times explaining my situation and they refused to do anything to help and every fThe issue for me was that, as a previous poster I started using the Overdraft limit as my £0. Bad move, but the let you do it, and had no intention of stopping you!
I phoned up LLOYDS and told them to give me a way out of it, they converted the overdraft into a personal loan, and I paid the lot back at 5% or whatever it was rather than the1000% the charges were being charged at.
LLOYDS said that 95% of customers would save, the 5% got stung. My view is they need to offer that 5% a way out, seeing as they are supposed to be 'responsible' lenders.
king month they'd charge me that £15 a day for 10 days and this just went on and on until the account was about £2000 overdrawn at which point they eventually closed it and tried to pursue me for the money. I never paid it and they never carried through with their threats. Why would I pay it, I'd never actually had that money in my hands, it was just numbers they kept adding to my account. This is led by regulators, not by the banks.
Banks were identified as the bad guy for the 2008 crash and numerous scandals such as PPI.
The response has been a huge increase in regulation. Some of this is good and protects the vulnerable. That’s the intention of this change.
HSBC are not the first to make the change and, assuredly, won’t be the last.
As an aside, the huge cost in responding to regulation is affecting the whole industry and ultimately the cost is drawn from the customers.
If concerned about a bank making vast profits for the shareholders, switch to a mutual (building society) instead. Not specifically for this instance, but in general.
Banks were identified as the bad guy for the 2008 crash and numerous scandals such as PPI.
The response has been a huge increase in regulation. Some of this is good and protects the vulnerable. That’s the intention of this change.
HSBC are not the first to make the change and, assuredly, won’t be the last.
As an aside, the huge cost in responding to regulation is affecting the whole industry and ultimately the cost is drawn from the customers.
If concerned about a bank making vast profits for the shareholders, switch to a mutual (building society) instead. Not specifically for this instance, but in general.
Equilibrium25 said:
This is led by regulators, not by the banks.
Banks were identified as the bad guy for the 2008 crash and numerous scandals such as PPI.
The response has been a huge increase in regulation. Some of this is good and protects the vulnerable. That’s the intention of this change.
HSBC are not the first to make the change and, assuredly, won’t be the last.
As an aside, the huge cost in responding to regulation is affecting the whole industry and ultimately the cost is drawn from the customers.
If concerned about a bank making vast profits for the shareholders, switch to a mutual (building society) instead. Not specifically for this instance, but in general.
I did hear the the regulators brought in the 'you can't charge customers £5 for going outside of an unarranged overdraft' however rather than the banks with their billions of pounds profits just scrapping the fee and applying the same interest rate to everyone, they're recouping the money back by increasing the APR globally to everyone in their overdraft, agreed or not!Banks were identified as the bad guy for the 2008 crash and numerous scandals such as PPI.
The response has been a huge increase in regulation. Some of this is good and protects the vulnerable. That’s the intention of this change.
HSBC are not the first to make the change and, assuredly, won’t be the last.
As an aside, the huge cost in responding to regulation is affecting the whole industry and ultimately the cost is drawn from the customers.
If concerned about a bank making vast profits for the shareholders, switch to a mutual (building society) instead. Not specifically for this instance, but in general.
The issue I have is that they seem to be bringing this in without much warning...only 3 months...at least give people a year or 2 to try and get themself out of living in their overdraft.
jackofall84 said:
The issue I have is that they seem to be bringing this in without much warning...only 3 months...at least give people a year or 2 to try and get themself out of living in their overdraft.
Get a loan, pay off overdraft, pay down loan... Easy for me to say, obviously!However, if you’re living in your overdraft with no real intention to pay it back, it’s not really where you should be, or where the bank should want you to be. An overdraft isn’t a “good” way to borrow, as there’s no payment plan behind it to ensure you aren’t always in debt. It “should” be used as a short term facility to avoid excess bank charges if you misjudge the position of your account, rather than as a source of funds.
Apologies if this comes across as holier than thou!
A relative asked me to look at her Halifax bank statement earlier this year.
She seemed to spend most of each month with an overdraft between GBP1-2k, but was in credit for a few days after being paid.
Halifax were charging her nearly GBP4 per day in overdraft fees, so often more than GBP100 per month, c.7% of the average amount borrowed per month!
We reorganised her finances, but it seemed to me brutally unfair that the banks extort those with the least means to dig their way out of a hole, whilst the costs of actually operating her account (no defaults on anything) are the same as for one in credit. Ironically, it was called a REWARD account - not for her though!
She seemed to spend most of each month with an overdraft between GBP1-2k, but was in credit for a few days after being paid.
Halifax were charging her nearly GBP4 per day in overdraft fees, so often more than GBP100 per month, c.7% of the average amount borrowed per month!
We reorganised her finances, but it seemed to me brutally unfair that the banks extort those with the least means to dig their way out of a hole, whilst the costs of actually operating her account (no defaults on anything) are the same as for one in credit. Ironically, it was called a REWARD account - not for her though!
DanL said:
et a loan, pay off overdraft, pay down loan... Easy for me to say, obviously!
However, if you’re living in your overdraft with no real intention to pay it back, it’s not really where you should be, or where the bank should want you to be. An overdraft isn’t a “good” way to borrow, as there’s no payment plan behind it to ensure you aren’t always in debt. It “should” be used as a short term facility to avoid excess bank charges if you misjudge the position of your account, rather than as a source of funds.
Apologies if this comes across as holier than thou!
This is a reasonable solution, in some ways though it's ease of access in an overdraft.However, if you’re living in your overdraft with no real intention to pay it back, it’s not really where you should be, or where the bank should want you to be. An overdraft isn’t a “good” way to borrow, as there’s no payment plan behind it to ensure you aren’t always in debt. It “should” be used as a short term facility to avoid excess bank charges if you misjudge the position of your account, rather than as a source of funds.
Apologies if this comes across as holier than thou!
From an outsider looking in I'm sure it'd be easy to point out our financial wrong doings over the last 2 years. I like to think I had a little foresight though.
I knew the last 2 years would be tough due to my wife reducing her hours at work to have 2 days off with our son after he was born and at the same time have to pay for his nursery 3 days a week. The combination of her reduced hours and his nursery fees totals to about £900 - £1000/month from where we were before having the little bundle of joy.
Whilst we made some serious cut backs we still found ourselves coming up short some months as I expected so ensured we had a fairly decent overdraft facility (why we got our joint account with HSBC and not Barclays) and an interest free on purchase credit card.
Anyway fast forward 2 years and we start getting the 30 hours funded nursery fees in January and our mortgage has recently come down a bit as well, the plan being now that we'll have a little bit more each month for some finer luxuries as well as being able to pay off large chunks from the credit card and start clawing our way out of the overdraft.
It's just annoying as obviously it will take a while to repay the overdraft and we'll be penalised in the process now. Also I expect some people aren't now in the same position we're in and will still be needing to use their overdraft on a monthly basis to get by.
eldar said:
The news said the banks made 2.8bn in profits from overdraft charges.
Are they supposed to lend everyone money for free?People seem to be far too entitled when it comes to overdrafts.
It is not your money. And when you borrow someone else’s money, it costs.
Overdrafts are unsecured, non-structured debt. So high risk, and come with a fairly high cost.
I’m not trying to be intentionally obtuse or out of touch with people needing help to afford things, but if you don’t like it, don’t use it... if you say that you HAVE to use overdrafts, you are by definition high risk.. so again, that comes with an associated cost.
Pleased Mrs PB's efforts over the last few months have got me out of the HSBC overdraft I seemed to be perpetually stuck in. Account now closed in fact and I'm enjoying being with Nationwide.
Odd ones HSBC. Well, maybe they all are. Massive interest-free overdraft facility through Uni - presumably a gamble that I'd graduate and earn millions - then an even higher facility when I did start earning, even though I was managing nicely without it.
Then I go self-employed, open 3 business accounts with them, including the one that has to have a minimum balance in it all times and the one all the client money goes through, yet they'd threaten to pull my personal overdraft every other month because my powerfully-built Director basic wasn't enough.
The very definition of 'will only give you an umbrella when it's not raining'.
Odd ones HSBC. Well, maybe they all are. Massive interest-free overdraft facility through Uni - presumably a gamble that I'd graduate and earn millions - then an even higher facility when I did start earning, even though I was managing nicely without it.
Then I go self-employed, open 3 business accounts with them, including the one that has to have a minimum balance in it all times and the one all the client money goes through, yet they'd threaten to pull my personal overdraft every other month because my powerfully-built Director basic wasn't enough.
The very definition of 'will only give you an umbrella when it's not raining'.
Funnily enough, I accompanied a relative to HSBC that has got themselves in a bit of a pickle money wise.
I'd seen this story on the news and asked about it and was told relative would be better off (which is true). Currently they pay £80 month in fees and £17-20 in interest for going over their "agreed" overdraft of £1250, up to £1750 when HSBC start bouncing debits / stop her getting cash out. The nice lady explained that instead of nearly £100 a month at 40% the maximum she'd pay would be £500 in a year, or £44 a month! So HSBC are really nice.
They couldn't answer though why they'd let her go past the agreed overdraft in the first place. I transferred some of my in short supply money and asked my relative to ask the bank to not give her an overdraft as I'd now cleared it and to not let any payments send her overdrawn. Christ, that was hard to persuade them to do. Only when I suggested they were vicarious in letting her go overdrawn, now I'd transferred some of my money to her online in the branch her overdraft was now zero (big irony, I sent myself overdrawn in my HSBC account but I funds to cover that in the next few days) and asked that should we escalated the banks reluctance via their complaints and to the Obudsman. That got a quick response.
Anyway the other thing relative was doing and I thought this would be a no brainer fail, was wanting to consolidate lots of credit card debts and loans into one loan. No dice as their income only just equals their monthly outgoings, experian credit score in the low hundreds due to all the bounced debits. So bank suggested getting in touch with a charity Stepchange to work out a Debt Management Plan (which I knew was coming), bank person wrote the phone number down and we left.
Now I had to go off and some other stuff in that afternoon. Relative rung the DMP people. I'd told her on no account sign anything etc etc until I'd had chance to read any agreement made and could she make sure she got a copy sent in the post to read and sign and check properly. Three hours later, I call round, she is all happy. Debt Management Plan worked out, she just needs to go to a website that the DMP people had sent her a link to and tick she agrees the T&Cs and she could start paying back the plan that night if it was all done online. Warning bell on time pressure, or efficient helpful people?
I read the docs online with her, the DMP was charging her nearly £10k to sort out £40k debt and while her initial monthly payments were 30% less than her current debt payments, the longest loan / cc she has is 4 years, the shortest only 5 months left, the DMP was going to be 7 years!!!! She was going to pay back £60k! Then I noticed the name on the DMP wasn't the charity we'd been mentioned. So I go on the FCA website and search the company name, not a charity or affiliated with one at all, but seems to flip and change their name / loose FCA accreditation every year and phoenix as a new company.
Relative called the charity the next day and said, how come, you've used another company name and charged me all this when your website says a DMP shouldn't be charged for. Stepchange guessed which bank we banked with and said it wasn't the first time the'd heard of their name being mentioned, but then another companies phone number been put on the piece of paper you leave the bank with.
Action Fraud were called. Police were called and have requested a CRN for fraud. HSBC called to raise formal complaint. HSBC told police informed and I'd supply CRN if I get one during call. Manager from local branch called back.
I'd seen this story on the news and asked about it and was told relative would be better off (which is true). Currently they pay £80 month in fees and £17-20 in interest for going over their "agreed" overdraft of £1250, up to £1750 when HSBC start bouncing debits / stop her getting cash out. The nice lady explained that instead of nearly £100 a month at 40% the maximum she'd pay would be £500 in a year, or £44 a month! So HSBC are really nice.
They couldn't answer though why they'd let her go past the agreed overdraft in the first place. I transferred some of my in short supply money and asked my relative to ask the bank to not give her an overdraft as I'd now cleared it and to not let any payments send her overdrawn. Christ, that was hard to persuade them to do. Only when I suggested they were vicarious in letting her go overdrawn, now I'd transferred some of my money to her online in the branch her overdraft was now zero (big irony, I sent myself overdrawn in my HSBC account but I funds to cover that in the next few days) and asked that should we escalated the banks reluctance via their complaints and to the Obudsman. That got a quick response.
Anyway the other thing relative was doing and I thought this would be a no brainer fail, was wanting to consolidate lots of credit card debts and loans into one loan. No dice as their income only just equals their monthly outgoings, experian credit score in the low hundreds due to all the bounced debits. So bank suggested getting in touch with a charity Stepchange to work out a Debt Management Plan (which I knew was coming), bank person wrote the phone number down and we left.
Now I had to go off and some other stuff in that afternoon. Relative rung the DMP people. I'd told her on no account sign anything etc etc until I'd had chance to read any agreement made and could she make sure she got a copy sent in the post to read and sign and check properly. Three hours later, I call round, she is all happy. Debt Management Plan worked out, she just needs to go to a website that the DMP people had sent her a link to and tick she agrees the T&Cs and she could start paying back the plan that night if it was all done online. Warning bell on time pressure, or efficient helpful people?
I read the docs online with her, the DMP was charging her nearly £10k to sort out £40k debt and while her initial monthly payments were 30% less than her current debt payments, the longest loan / cc she has is 4 years, the shortest only 5 months left, the DMP was going to be 7 years!!!! She was going to pay back £60k! Then I noticed the name on the DMP wasn't the charity we'd been mentioned. So I go on the FCA website and search the company name, not a charity or affiliated with one at all, but seems to flip and change their name / loose FCA accreditation every year and phoenix as a new company.
Relative called the charity the next day and said, how come, you've used another company name and charged me all this when your website says a DMP shouldn't be charged for. Stepchange guessed which bank we banked with and said it wasn't the first time the'd heard of their name being mentioned, but then another companies phone number been put on the piece of paper you leave the bank with.
Action Fraud were called. Police were called and have requested a CRN for fraud. HSBC called to raise formal complaint. HSBC told police informed and I'd supply CRN if I get one during call. Manager from local branch called back.
Captain Raymond Holt said:
Not my field, but I'd guess they have to set capital aside to cover it as it's a credit risk.
Yes, they have to put capital aside even if the overdraft is not used, and more if it is.Overdrafts are payable on demand, and are not supposed to be used for persistent borrowing, so they need to be used carefully.
They are a good alternative to a payday loan, if you have no emergency fund and need a new cooker, but that’s about it.
If you are in it persistently then it’s probably worth drawing up a proper statement of affairs and budget, and starting a spending diary, to work out how to get back to living within your means.
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