New rules to make overdrafts easier to manage have come into force across the UK.

The changes introduced by the Financial Conduct Authority (FCA) mean that banks will no longer be able to display your overdraft as part of your available balance or funds, making it a lot clearer for consumers to see the difference.

Until now, overdraft limits were displayed as part of the available balance on most accounts, meaning some consumers accidentally dipped into their overdraft without realising. The new rules mean that the distinction between the two is a lot clearer – and emphasises the fact that overdrafts are a form of credit from the bank opposed to the customer’s own money.

The new changes mark the start of an industry-wide shake-up of overdrafts in order to make them fairer and easier for consumers to use. 

As part of the changes, new charging rules will also be coming into action on 6 April next year, with the main change being that banks and building societies will no longer be able to charge higher prices for unarranged overdrafts than they do for arranged overdrafts.

There will also be a ban on fixed fees for borrowing through an overdraft, and banks and building societies will be required to advertise their arranged overdraft prices alongside an APR.

Phil Sheehy, NatWest’s customer lead for short term borrowing explained: “Overdrafts provide a way for customers to smooth their short-term cashflow. At NatWest, our priority is to make banking easy and charges clear.

“We know this FCA initiative will help to make overdraft charges more simple, clearer and easier for our customers to understand and welcome these changes.

“We will be communicating to our customers in due course to make sure they know what this review means for them ahead of the FCA’s deadline.”

The new changes come after a 2018 report from the FCA found that banks were making an estimated £2.3 billion in revenue each year through high-cost credit practices. The agency estimated that the new changes (including the one introduced today) could save UK consumers a total of £200 million because they would provide more transparent information about high-cost credit.

When approximately 14 million people use an unarranged overdraft each year, and research from the Young Women’s Trust shows that 40% of women aged 18-30 struggle to make their money last until the end of the month, it’s clear to see how these seemingly small changes could actually make a big difference. 

Images: Getty