Lloyds, Halifax, and Bank of Scotland overdrafts warning

A sign outside a Lloyds Banking Group Plc bank branch in London
-Credit:Getty


Customers of Lloyds, Halifax, and Bank of Scotland with overdrafts could be hit by rate hikes, with some seeing their interest rates soar to as high as 49.9 percent from Friday, January 31. The increases, highlighted by Moneysavingexpert.com, are part of a wider restructuring announced last year by Lloyds Banking Group.

While the bank maintains that most customers will pay the same or less, Club Lloyds customers may face nearly doubled rates, jumping from 27.5 percent to 49.9 percent. The applicable rate for each customer is determined by an "affordability assessment" which takes into account their credit history and banking activity.

The restructuring has been rolled out in stages. Rates initially increased in August 2024, with temporary rates of 34.9 percent or 44.9 percent introduced to ease the transition. On January 31, 2025, these temporary rates will end, rising further to either 39.9 percent or 49.9 percent. All customers with an arranged overdraft will be moved to one of four new rates: 19.9%, 29.9%, 39.9% (most customers), or 49.9%.

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Pound coins and bank notes.
Customers of Lloyds, Halifax, and Bank of Scotland with overdrafts could be facing rate hikes -Credit:Getty

Who's affected?

The bank asserts that "the vast majority" of customers will not see any change or will experience a reduction in rates. However, it remains unclear how many customers will be affected by the rate increases. If you don't currently have an overdraft, these changes won't impact you, but any future overdraft will be subject to the new rates.

For those facing an increase, here are some tips to reduce or avoid overdraft costs:

  • Consider switching to a bank that offers a 0 percent overdraft. For instance, First Direct provides many new customers with a £250 0 percent overdraft and a £175 switch bonus to assist in debt repayment.

  • Utilise a 0 percent 'money transfer' credit card. These cards permit you to transfer funds into your bank account for a one-time fee (around 4 percent), enabling you to clear your overdraft and repay the card at 0 percent interest.

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Some cards offer up to 12 months interest-free.

If you're struggling financially, contact your bank. The Financial Conduct Authority (FCA) mandates banks to aid customers in financial difficulty.

This could involve waiving or reducing overdraft interest or converting your overdraft into a lower-interest loan. If your bank won't help, you can escalate your complaint to the Financial Ombudsman.

If you're feeling overwhelmed by debt, take these steps:

  • Evaluate your situation. Are you finding it hard to make minimum payments?

  • Is your total debt more than one year's salary (excluding mortgages/student loans)?

  • Are you losing sleep or feeling anxious about your debt?

If so, you may require personalised debt counselling.

For professional support, homeowners are advised to reach out to organisations such as Citizens Advice, National Debtline, StepChange, or CAP for free, non-judgmental help. They can also visit the Moneysavingexpert.com Debt-Free Wannabe Forum for success stories and tips, or read the site's Mental Health & Debt Guide for emotional support.

More information can be found here.