Back in June 2019, the Financial Conduct Authority (FCA) announced that it was introducing new rules to fix the overdraft market, encourage a healthier use of overdrafts and let borrowers compare rates. This means that between now and April 2020 we’re moving everyone over to a personalised interest rate based on your credit score, so we can no longer offer overdrafts at a fixed fee (the 50p per day we offer now). We’ve also used this time to make some more updates to our overdrafts.
We’ve explained the changes in detail below; here they are in brief:
We’re moving from a fixed 50p per day overdraft fee to an EAR of 19%, 29% or 39% (variable), depending on your credit score.
87% of people will be better off or see a monthly change of less than £1.
We’re offering limits of up to £3,000 for some customers, since that’s something people have been asking us for.
We’re removing the free £20 buffer, but under the new EAR pricing, the charge for being £20 overdrawn for a month is 57p at most.
On 1 April 2020, we’ll start charging everyone with a Monzo overdraft an EAR of 19%, 29% or 39% (variable)
Your rate will depend on your credit score, and we’ll always tell you the exact rate you’ll pay, and what that means in pounds, before you borrow from us.
EAR stands for effective annual rate. This is equivalent to the rate of interest you'll pay if you're overdrawn for a year. You'll pay interest on the amount you're overdrawn by, and on the interest that builds up from being overdrawn. So you'll pay less if you regularly pay off your overdraft. EAR doesn’t include other fees, like hidden or late fees – but we don’t charge these anyway.
Variable means we have the right to change the rate, but we’ll always give you notice if we do.
We’re rolling this change out gradually over the next few months. So we’ll give you the option to change to the new pricing in December or January, or you can wait until 1 April when we will switch everyone over.
We think 87% of people will be better off or see a monthly change of less than £1.
We’ve made sure most Monzo customers with an overdraft at the moment will either see no big changes in pricing, or be better off from these changes. We’ve calculated this by looking at all our customers who were using an overdraft during October 2019. We worked out how much they would have paid for their overdrafts if they were charged their personal EAR rate, and found that most of them would see no significant change or be better off.
Depending on how much you use your overdraft, your cost might go up or down. If you only use your overdraft occasionally and pay it back quickly you’ll likely end up saving money compared with the 50p daily rate.
We’ve built this calculator for you to compare what you’d pay at the different rates.
We’re not introducing any other fees
We still won’t charge you a higher price for going into an unarranged overdraft, or fees for any bounced payments. We’ll keep sending you notifications when you’re about to go into your overdraft too, so you’re always in control.
We’re increasing some people’s limits to £3,000
Customers have been asking for higher limits for some time, so we’ve introduced higher limits for some people. As always, this won’t apply to everyone and we’re very careful about only giving people what we’re confident they can safely afford to borrow.
Using a bigger limit short-term can really help out in a pinch – if your boiler breaks down just before payday, that extra cushion in your account can make all the difference.
We’re removing our £20 fee-free buffer
At the moment if you go overdrawn up to £20 we don’t charge for it, whether you have an overdraft or not. With interest based pricing, the charge for being overdrawn £20 for a month is a maximum of 57p based on an EAR of 39% (variable).
If you ever struggle with your overdraft, we’re here to help
We have a team dedicated to helping customers get back in control of their finances. If anyone struggles with their overdraft, we have a few ways to help out.
We review people’s situations and give them tools so they can gradually repay their overdraft in a way that’s affordable for them.
From early next year we’ll also be even more proactive messaging people who show signs of using their overdraft in an unsustainable way, and offering them help.