Customers of Lloyds, Halifax, and Bank of Scotland with overdrafts face potential rate hikes, with some seeing their interest soar to as high as 49.9 percent from Friday, January 31.
The increases – identified by Moneysavingexpert.com – come as part of a broader restructuring announced last year by Lloyds Banking Group.
While the bank insists most customers will pay the same or less, others – particularly Club Lloyds customers – could see their rates nearly double, rising from 27.5 percent to 49.9 percent.
The rate that applies to each individual depends on an “affordability assessment” that considers their credit history and banking activity.
The restructuring has been implemented in phases. Rates initially rose in August 2024, with temporary rates of 34.9 percent or 44.9 percent introduced to soften the blow.
On January 31, 2025, these temporary rates will expire, climbing further to either 39.9 percent or 49.9 percent.
All customers with an arranged overdraft will be moved to one of these four rates:
- 19.9%
- 29.9%
- 39.9% (most customers)
- 49.9%
The bank claims that “the vast majority” of customers will see no change or a reduction in rates. However, the full scale of those impacted by increases remains unclear.
If you don’t have an overdraft on your account, these changes won’t affect you—though any future overdraft will fall under the new rates.
How to reduce or avoid overdraft fees:
If you’re facing an increase, here are some ways to cut costs:
- Switch to a bank with a 0 percent overdraft.
Consider moving your account to a bank offering interest-free overdrafts. First Direct, for example, provides many new customers with a £250 0 percent overdraft and a £175 switch bonus to help pay off debt.
- Use a 0 percent ‘money transfer’ credit card.
These cards allow you to transfer funds into your bank account for a one-time fee (around 4 percent), letting you clear your overdraft and repay the card at 0 percent interest. Some cards offer up to 12 months interest-free.
Contact your bank if you’re struggling
The Financial Conduct Authority (FCA) requires banks to assist customers in financial difficulty. This could include:
- Waiving or reducing overdraft interest.
- Converting your overdraft into a lower-interest loan.
If your bank won’t help, escalate your complaint to the Financial Ombudsman.
Help for those in debt
If you’re feeling overwhelmed by debt, take these steps:
Assess your situation:
- Are you struggling to make minimum payments?
- Is your total debt more than one year’s salary (excluding mortgages/student loans)?
- Are you experiencing sleepless nights or anxiety about your debt?
- If yes, you may need personalised debt counselling
Seek professional support:
- Contact organisations like Citizens Advice, National Debtline, StepChange, or CAP for free, non-judgmental help.
- Visit the Moneysavingexpert.com Debt-Free Wannabe Forum for inspiring success stories and tips, or read the site’s Mental Health & Debt Guide for emotional support.
- More information can be found here.
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