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Major bank to extend interest-free overdrafts to £500 as part of cost of living help for customers

A MAJOR high street bank is offering customers a larger interest-free overdraft to help in the cost of living crisis.

HSBC is extending the amount people can borrow without being charged.

Customers can request to have their interest-free overdraft limit extended from £25 to £500

Thousands of the bank’s 14 million customers are being given the option to extend their interest-free overdraft limit from £25 to £500.

The borrowing will be available to use for a 12-month period from the extension.

Customers will need to apply to make the change to their account to borrow the extra money.

In an email sent to customers, the bank said: “Need a hand with the rising cost of living? With prices continuing to rise sharply, we’d like to help you wherever we can.”

“Upon request, we won’t charge existing overdraft customers any interest up to the first £500 of arranged overdraft borrowing for 12 months.”

The overdraft support is available for thousands of customers holding any of the following accounts with HSBC:

  • Bank account
  • Advance account
  • Bank account pay monthly
  • Current account

HSBC Premier customers are excluded from the support.

Only those who currently hold an overdraft with the bank can apply for an interest-free extension.

Without the support, HSBC charges interest on any overdraft balances above £25.

So if you’re overdrawn by more than £25 you’ll start paying interest at 39.9% EAR.

The support on offer raises this £25 interest-free limit by £475 so that customers only start paying interest at 39.9% EAR on balances above £500.

Without this support, anybody overdrawn by £500 across the year would end up paying close to £200 in interest when paying off their overdraft after 12 months.

To get the support customers will need to complete a short form which is attached to the email and available on the bank’s website before March 31, 2023.

HSBC said that customers who aren’t registered for online banking can still complete the form.

Once the 12-month period of support is up interest-free overdraft limits will fall back to £25 and customers will once again be charged interest at 39.9% EAR on any amount above this.

It means anyone who is overdrawn by more than £25 at the end of the 12 month extension period will start being charged interest.

HSBC is also making a change to savings accounts that could help cash-strapped customers.

It is axing early closure penalties on fixed-rate saving accounts.

It means customers will be able to access their cash early without charge.

With fixed savings accounts you usually have to lock away your money for a certain period of time.

If you take the money out before the fix ends then you can lose the rate of interest or be charged a penalty, or both.

HSBC normally charges customers a fee that’s worth 90 days’ gross interest on their balance.

But the bank has removed its early closure fees on fixed rate saver accounts from November 1.

It remains unclear how long the support on this will last.

Customers needing to access their cash locked-in to a fixed saver should contact HSBC through its online chat, via telephone banking or by visiting a branch.

Greg Went, head of customer propositions at HSBC UK, said: “During the challenging months ahead, we’re committed to being there for our customers and helping them when they need us most.

“At a time when customers are facing more financial pressures than usual, an interest-free overdraft can help with unexpected expenses. For those that need to dip into savings to help make ends meet, we are also waiving early withdrawal fees on our fixed-rate accounts.”

HSBC isn’t the only bank to offer overdraft support to help with the cost of living.

Earlier in the year, Barclay’s offered 130,000 customers a £500 interest-free overdraft buffer for six months.

But unlike HSBC’s scheme, Barclay’s help was more targeted and customers couldn’t apply for the help directly.

Right now, Barclay’s customers don’t pay interest if they’re overdrawn by £15 or less.

However, the bank charges customers 35% APR on any overdraft balances above £15.

Each bank sets its own interest-free overdraft buffer and they vary widely.

First Direct offers the highest interest-free overdraft limit of £250.

Followed by TSB which offers their Spend and Save customers a £100 interest-free overdraft buffer.

Halifax and Lloyds Bank both offer most customers a £50 interest-free overdraft buffer.

We’ve contacted all the banks to see if they have any plans to extend their interest-free overdraft buffers to help with the cost of living.

So far Natwest told us that they keep all their interest-free overdraft buffer rates under review but have no plans to make any changes at the moment.

What is an overdraft?

An overdraft allows you to borrow money using your current account.

You can arrange an overdraft with your bank, which allows you to borrow up to a pre-set amount.

Usually, there’s a charge when you go overdrawn, which gets bigger the more you borrow.

You might request an overdraft limit from your bank or your account might automatically give you one as part of its package.

An unauthorised overdraft is where you spend more than is in your account or go over the agreed overdraft limit.

If the bank account holder doesn’t go back into the limit then they will be hit by daily fees which can mount up.

What are the advantages?

The benefits are that it is a quick and easy way of borrowing, provided your credit rating is good enough.

They can often provide a safety net should you have to make an unexpected payment.

What are the disadvantages of having one?

The major disadvantage to using an overdraft is the high borrowing fees that come with it.

Millions of Brits find themselves permanently in their overdrafts and this can be costly, particularly for young people or new families.

They can be very tricky to pay off unless you make some savings and get a pay rise.

What are the alternatives?

If you really need to borrow, a credit card may provide lower rates.

Some providers offer balance transfer cards which offer lengthy interest-free periods on borrowing.

These types of credit cards allow you to move over more expensive debts you already owe onto a new card, and you won’t pay interest on this amount for a set period.

Be aware that the lowest-interest credit cards are only offered to customers with a decent credit score.

And as always it’s vital to ask yourself if you actually need to borrow before committing to a new credit card.

If you do need to borrow, only do so if it’s for emergencies like a boiler repair or vehicle repair.

And remember the cheapest way to borrow if you need it in an emergency is from family and friends – as you won’t pay interest.

Customers that have recently applied for Universal Credit could also be eligible for an interest-free advance loan.

This can help you to cover essential costs like food, gas and electricity, while you wait for regular payments to kick in, but you will have to pay it back.

But the advance loan will mean that your Universal Credit payments are reduced in the following months.

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