Santander is to scrap unarranged overdraft fees for customers on paid-for accounts – and reduce charges for all other current account holders, next week.

The Spanish lender said those on its 123 Current Account, the 123 Lite Current Account and the newly introduced Select and Private current accounts will pay no penalties for going overdrawn without notice from Tuesday 10 July.

It comes two months after an investigation found the bank’s overdraft fees can be almost 7.5 times higher and £155 more expensive than a payday loan – charging customers a hefty £179 over 30 days.

Santander said the changes will benefit 4 million current account customers who pay a monthly fee for their accounts.

Meanwhile anyone with a fee-free personal current account – such as student accounts and the Everyday Current Account – will see their Maximum Monthly Charge (MMC) reduced from £95 to £50.

This includes all unarranged overdraft fees, including paid and unpaid item fees.

Santander said its Basic Current Account will continue to be available to new and existing customers. This account has no overdraft fees and no monthly account fee.

The bank’s decision follows Lloyds Banking Group who scrapped unarranged overdraft fees in 2017.

It’s understood that Britain’s banks raked in £2.3 billion in revenue from overdraft charges in 2016, with the financial watchdog now mid-way through a “fundamental reform” of the system.

Unarranged overdrafts vs arranged ones: What’s the difference?

A woman takes cash from her purse during shopping

Arranged overdrafts: These are authorised in advance through your bank or building society. If your balance hits zero, you can borrow money up to the agreed limit, which can then be paid off at a later date. There are often fees associated.

Unarranged overdrafts: These are also known as unplanned overdrafts and happen when you go overdrawn without requesting the money in advance. This often comes with a penalty fee that can escalate quickly.

Reza Attar-Zadeh, at Santander UK, said: “These changes mean four million adult current account customers will benefit from no unarranged overdraft fees on their accounts.

“On other accounts, the maximum unarranged fees a customer could pay each month will be almost halved and customers will be automatically registered for unarranged overdraft alerts to help them minimise or prevent such fees.

For those with arranged overdrafts, fees will remain the same for all accounts with the £12 overdraft usage fee buffer – customers will also still be able to credit their account by 4pm to avoid overdraft fees.

Santander current accounts explained

Santander cash machine
  • 123 Current Account – This account pays you cashback on selected household bills and interest on your balance. It comes with a monthly £5 fee.
  • Select Current Account – Offers all of the above plus access to personal banking service Santander Select. A £5 monthly fee applies, and you need to pay at least £5,000 per month into a Select Current Account or keep £75,000 in any Santander investment(s), savings or current account to qualify.
  • 123 Lite Current Account – This one pays you cashback on selected household bills when you use online or mobile banking – but there’s a £1 monthly fee.
  • Everyday Current Account – Allows you to have your income paid in, pay bills and apply for an arranged overdraft facility with no monthly charge.
  • Choice Current Account – For a £10 monthly account fee the Choice Account makes sure you are not charged for any unarranged overdraft fees.
  • Basic Current Account – Have your income paid in, pay your bills and get a Top-up Visa debit card to make card payments. If you’re a European Union resident living outside the UK, this is the only Santander current account available to you.
  • 123 Mini Current Account – This account must be held by an adult for children aged 0-10. When they’re 11 young people can take control of the account themselves.
  • 123 Student Current Account – Offers a free Santander 16-25 Railcard, interest on your balance and an interest-free and fee-free arranged overdraft.
  • 123 Postgraduate Current Account – This one’s designed for students continuing with higher education after an undergraduate degree – they can access an interest-free and fee-free arranged overdraft and in-credit interest.
  • 123 Graduate Current Account – For graduates who have completed a course within the past 3 years and require access to an overdraft.
  • Essentials Current Account (for new-to-UK students and workers) – A 31 a month current account for anyone that’s recently moved to the UK.

Outside of this, fees cost £1 a day for usage up to £1,999, £2 a day for usage from £2,000 to £2,999.99 and £3 a day for £3,000 or more.

Rachel Springall, finance expert at Moneyfacts , said: “Removing the unarranged overdraft charges is a great move by Santander as borrowing from this facility can be the most expensive form for short-term lending.

“On the 123 Current Account, Santander usually charge £6 per day on its unarranged overdraft once a £12 buffer has been breached, so the removal of the daily charge will be a huge difference to those current account holders using the limit,” Springall added.


“Unfortunately, Santander hasn’t taken this as an opportunity to reduce the carding on its arranged facility, which again provides a £12 buffer but can charge a daily fee between £1, £2 or even £3 depending on the amount overdrawn.”

‘Rip-off bank overdraft fees are worse than payday loans’

Santander’s decision to scrap penalties and reduce them elsewhere comes two months after a damming report revealed how banks are charging rates that are higher than payday loans .

Which? compared the cost of borrowing £100 for 30 days in an unarranged overdraft with 16 high street banks versus borrowing via a payday loan.

It found 13 banks were charging more than a payday loan company.

Santander topped the poll as the most expensive – while TSB was found to be 6.5 times higher, charging £160, while HSBC is six times higher at £150.

The Financial Conduct Authority capped payday loan charges into 2015 . Under the stricter rules it would cost £24 for the £100 loan over 30 days via a payday lender.

Gareth Shaw, Which? money expert, said: “It’s alarming that the majority of banks are still allowed to charge more than payday loan firms through these rip-off overdraft fees.

”These extortionate fees can cost thousands of pounds a year, hitting those who can afford it the least.”

Just weeks after the report, money regulator, the Financial Conduct Authority (FCA) launched a crackdown on high-cost credit as part of efforts to protect vulnerable consumers.

Following a wide-ranging review into the sector, it said reforms to bank overdraft charges, rent-to-own operators, doorstep lenders and catalogue credit and store cards are underway.

FCA chief executive Andrew Bailey said: “High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society.

“Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.

“The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.”

On – 06 Jul, 2018 By Emma MunbodhPersonal Finance Correspondent