A MAJOR bank with more than nine million customers has axed an unfair fee.
Monzo, the app-based bank, will no longer charge you interest if your account goes below £0.
Monzo, the app-based bank, will no longer charge you interest if your account goes below £0
Before, the bank charged users dipping into their unarranged overdraft interest rates of 19%, 29%, or 39% – if you didn’t have an arranged one.
How much you were charged depended on your credit score – and those with lower scores were the ones who paid more.
The amount you would be charged was capped at £15.50 a month.
But, from this week the bank will not charge you any interest if you do go into an unarranged overdraft.
An arranged overdraft is one you’ve agreed with your bank, while an unarranged overdraft is borrowing you haven’t agreed to.
So even if your balance does go below £0 and you don’t pay it off by midnight, you won’t rack up any extra fees.
If you go into your unauthorised overdraft often, you’ll be saving up to £15.50 a month.
Although it’s worth noting that if you do become overdrawn and don’t have an arranged overdraft, you should repay the money as soon as you can, as it could impact your credit score.
Regular use of any unauthorised overdraft, or going over an authorised limit, can affect your credit rating as lenders may see that you struggle with money.
Unlike some other banks, Monzo doesn’t actually offer an unarranged overdraft and attempts to reject all payments if you don’t have the required funds.
But in some cases, it can’t be avoided like if you make an offline payment, such as on the tube or in-flight.
If you entered an unarranged overdraft between April 1 to 3, you may have accrued interest on those days, which will be charged on May 1.
Monzo says it doesn’t charge fees for bounced payments and this will continue to be the case.
In recent years, banks have been forced to ditch overdraft fees after an investigation.
The Financial Conduct Authority found borrowers were being charged more interest by banks for unauthorised overdrafts than if they took out a payday loan.
As a result, banks can also no longer charge more for an unarranged overdraft compared to an arranged one.
But while banks have been banned from charging rip-off overdraft fees from 2020, they can still charge interest.
Monzo first introduced their interest charges back in 2020.
Charges for unarranged overdrafts have previously been deemed “unfair” by debt experts.
How to cut down your overdraft costs
THERE are a few ways to cut overdraft costs, and which suits you will depend on your situation. Here are a few options advised by MoneySavingExpert:
Spend less each month – do a proper budget and have a look at what you’re spending on.
Could you cut your morning coffee, or go down a brand at the supermarket?
Or, are you paying too much on your bills – if you haven’t switched energy, insurance and broadband recently, then it’s likely you could save £100s or even £1,000s over a year.
Move your bills – this can be dangerous if you’re not disciplined, but if you move your bills to just before payday rather than just after, many will be in credit (or less in the red) for less of the month, meaning you’re charged less for the overdraft. But – remember those bills are coming out, so don’t treat it like you’ve extra money to spend.
Move bank account – there are plenty to choose from and you can end up saving money.
Shift your overdraft on to a money transfer card – and don’t build it back up again.
Try setting up “pots” – sort your cash at the start of each month, so you have a bills pot, a spending pot etc. Use this technique to make payments to your overdraft, eg £100 a month, treating it like any other bill.
Seek advice – If you’re confused then seek expert financial advice. Citizens Advice, StepChange or The Money Advice Trust will all help you for free.
What else is changing?
On top of the axing of the unarranged overdraft interest, some other changes are coming from Monzo too.
From this week, you can pay cash into your Monzo accounts at any Post Office branch.
Before you could only pay in cash at any PayPoint – which you can still do as well.
Monzo will charge you £1 for each deposit though so bear that in mind.
You can deposit between £5 to £300 in one go, up to a maximum of £1,000 every rolling 180 days.
These limits are the same across both the Post Office and PayPoint.
Meanwhile, a little-known bank charge that’s still applied by five major providers could be pushing you into more debt.
Plus, a savvy saver has shared how she stashed £800 with a nifty tool using an online bank.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories
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