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- Monzo to charge customers with low credit scores higher overdraft charges
- Monzo to drop the 50p daily fee charge and start billing them on sliding scale
- Banks such as HSBC have already instituted the changes in overdraft fees
Digital bank Monzo has indicated that customers having a low credit score will be facing higher overdraft charges. Monzo becomes the latest to unveil the fees after the FCA called for reasonable, easier, and simpler overdraft charges.
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Monzo to charge overdraft rates depending on credit score
The online bank indicated that customers with low credit scores would pay overdraft fees of up to 39%. Currently, Monzo customers pay 50p per day and a maximum of £15.50 per month. It is when they overdraw their accounts by more than £20. The company appears set to ditch the daily charge and bill users on a sliding scale concerning their credit score.
The company indicated that it would increase its overdraft limit to £3,000 from £1,000. Monzo will charge affected customer annual equivalent rates of 19%, 29%, or 39%. As a result, those with lower credit scores will have to pay a higher rate of 39%.
Under the online bank’s charges, customers with excellent credit score expect to pay £7.20 if they borrow £1,000. It is if they only borrow for fifteen days, and it will be 30p less than the current daily charge of 50p. Nevertheless, those paying 29% would pay £10.58, with also those paying the 39% rate paying £13.72.
Changes to leave 87% of customers better off
Monzo plans to roll out the change gradually in the coming months. Users have the option of switching to the new regime in December and January. Alternatively, they can stay on the 50p-per-day rate until April when the online bank will switch all users over.
Currently, the bank has around 3.5 million current account customers. The company’s marketing project manager Ofelia Botella indicated that 87% of customers would be better off with the changes.
The cost one pays on how much they use the overdraft, meaning it could go up or down. For those who occasionally use an overdraft and settle it quickly, they could save more compared to the 50p-per-day rate.
HSBC quadrupled overdraft rates
Earlier this month, HSBC also announced similar changes to overdraft fees. The bank indicated that it could quadruple overdraft fees, which will affect 8 million users. HSBC stated that fees set at 19.9% APR could increase to 39.9% APR. It will affect users with arranged overdrafts as well as those with unarranged.
However, experts indicate that this is sending a wrong message by punishing customers with permission to spend. At the same time, it will be a reprieve for those who go into overdraft without permission, as they will pay smaller fees.
Fortunately, some banks still offer lower overdraft rates irrespective of one’s credit score. If the changes hit you, you can change to an account having a cheaper overdraft.
Rebecca White is chief editor at CreditRaters.com. Rebecca has an extensive amount of knowledge on financial subjects including short-term loans & debt consolidation in the UK and USA. Rebecca has wrote for many publishers such as Debt Secret, My Money, VL and more.