Starling Bank follows rival Monzo in raising overdraft charges for those with bad credit scores – but capped at a lower 35%

via This is Money

  • Currently Starling Bank customers pay a 15% flat fee for borrowing
  • Some will still be offered this but others could see the rate raised to 25% or 35%
  • Monzo also revealed that borrowers would pay 19%, 29% or 39% 

Starling has become the second bank to announce it will hike overdraft fees for those with lower credit scores This is Money can exclusively reveal. 

The digital challenger bank is replacing its flat rate of 15 per cent and from next April will bill customers according to their credit score. It comes after rival Monzo unveiled similar changes late last week.

Borrowers will either be charged 15 per cent, the same as offered now, or 25 per cent or 35 per cent, depending on their rating.

The move will mean those who borrow £1,200 over six days will pay £2.76, £4.41 or £5.93, depending on which rate they qualify for.

It makes Starling the latest bank to at least partly raise some overdraft tariffs as it complies with new regulatory rules on borrowing, which come into force next April.

Banks are currently in the midst of announcing changes to their overdrafts, with many customers set to pay more following price hikes.

Nationwide and HSBC, and its sibling banks First Direct and M&S Bank, have already announced an across the board overdraft hike to 39.9 per cent, which in some cases will leave some customers paying almost triple.

Monzo at the end of last week unveiled its new tiered overdraft, with the bank replacing its 50p per day fee on all borrowing over £20 with a sliding scale which will charge customers 19 per cent, 29 per cent or 39 per cent, according to their credit score.

The fee-free buffer will also be axed as part of the changes.

Currently, someone borrowing £1,200 over six days with Monzo would pay £3. 

Bank account Old overdraft rateNew rate Fee-free buffer? 
Nationwide FlexAccount18.9% 39.9% No
HSBC Advance 17.9% 39.9% Yes – £25 
First Direct First 15.9% 39.9% Yes – £250 
M&S Bank 15.9% 39.9% Yes – £250 
Monzo 50p per day above £2019%/29%/39% No 
Starling  15%15%/25%/35% No 

Under the new system, they would pay £3.46, £5.08 or £6.59, depending on which of the three interest rates they are given.

The changes mean Starling remains the cheaper of the two challenger banks to borrow from, and that it is the first bank which has announced overdraft changes so far to not charge any borrowers a rate of 39 per cent.

Andrew Hagger, the founder of personal finance site Moneycomms, previously told This is Money that ‘paying almost 40 per cent for agreed overdrafts looks like becoming the norm’.

Starling’s chief executive Anne Boden said: ‘The new pricing structure is designed to reflect the true cost to us of offering overdrafts and to ensure that we can continue offering the best current account possible.’