As a Halifax current account holder I was shocked, as many others no doubt have been, to see the changes they’re making to the charges on their overdraft facility for their 2 standard accounts (the Reward Account and Reward Everyday Account, but not their student nor their “Ultimate Reward” accounts), to come into effect from December.
Thanks to the postal strike, my official letter from Halifax came through after the news had already broken on many financial sites. Had I not been aware of the changes, I probably would have dismissed the letter as another attempt by Halifax to flog me their Ultimate Reward current account or some other product.
The letter starts by explaining that they are scrapping the somewhat pitiful 0.1% interest they currently pay on positive balances (on their Reward Current “Everyday” Account), and getting rid of debit interest on your overdraft. Finally, it goes on to explain that they’re “introducing new, simple and easy-to-manage overdraft fees“. Which is marketing speak for “we’re going to charge you more”.
Instead of charging interest on your overdraft, Halifax are imposing are flat fee of £1 per day (up to £2,500 overdraft), or £2 per day (for authorised overdrafts over £2,500), or £5 per day if you go into an unauthorised overdraft.
It’s the fact that they’re moving to a flat fee that’s making this so controversial. It effectively makes it cheaper the higher the overdraft you have.
For example, if you have an overdraft of £100, over the course of the year you’ll pay £365, or a massive 365% APR. Increase your overdraft to £1,000 and you’ll still pay £365, but that now works out at the more modest (but still extortionate) 36.5% APR.
In actual fact, only those with overdrafts over £1,872 will be better off under the new charging structure, according to Which? (interestingly, I’ve heard a conflicting figure for this at around £1,300 – either way, you need a big overdraft to benefit). In our case, we have 3 accounts (2 single and 1 joint), so effectively we could be charged up to around £90 per month if all of our accounts were in their overdrafts for each day of a month. If that becomes likely, I’d be inclined to max out the overdraft on just one of the accounts to minimise the charges to a maximum of £30.
It’s a bold move by Halifax, and one that has got it quite a bit of negative press. Halifax are arguing that the charges are now far clearer than before, and that’s definitely the case. Clarity in banking is definitely something that’s needed, and it’s something that the FSA are trying to impose in the banks – sadly, clearer charges don’t necessarily mean fairer or cheaper charges. Other banks are likely to watch the fall out, some may benefit in the short-term from customers leaving Halifax, but in the long-term they could follow suit.
Halifax customers: What can you do about these changes?
If you’re angered by these changes enough  to want to switch your current account (and don’t forget, switching accounts is getting easier), then Lovemoney has some suggestions on where you can put your money, with accounts from Abbey and Alliance & Leicester offering interest-free overdrafts for a period of time, which could save you money compared to your Halifax account.
Over course, the ultimate aim should be to avoid these charges by digging yourself out of your overdraft.
photo credit: Ewan-M