Starling Follows Monzo | | Credit Raters

Starling Follows Monzo, Charges Low Credit Score Clients 35% Overdraft Fees

17 Dec 2019
Approx Reading time: 3 minutes
  • Starling Bank to move from the 15% flat rate on overdraft fee for borrowing
  • Under new changes, Starling Bank will charge customers varying rates of 15%, 25% and 35% depending on their credit score
  • Other banks have also reviewed overdraft fees and are charging up to 39%

Starling Bank has followed Monzo in raising overdraft fees for customers with lower credit scores. It is in line with the FCA’s new borrowing requirement that will come into force from April.

Starling bank to bill overdraft fees depending on credit score

The bank has indicated that as from April, it will charge customers overdraft fees according to their credit rating. Starling has stated that it will replace the 15% flat rate that it charges customers currently. As a result, the bank will bill borrowers 15%, 25%, or 35% depending on their credit score. This move comes days after Monzo also indicated that it would charge borrowers overdraft fees according to their credit rating.

With the new changes, it means that a borrower taking £1,200 in six days will pay £2.76, £4.41 or £5.93. It depends on the credit score of the borrower, and if one has a bad rating, it will pay the higher rate.

Starling offering cheaper overdraft fees capped at 35%

Starling bank joins a series of banks that have reviewed their overdraft fees in compliance with the new regulations. Banks have been announcing a hike in the overdraft fees, which will see most consumers pay more.

There is an automatic assessment of new customers once they sign up for an overdraft. The assessments are vital in the assigning of an EAR. However, if the customer's credit rating has changed, they can request for re-assessment. The company has since indicated that the borrower will always have two months' notice pending any changes.

The bank has said that customers can know how much they will pay next year by using the overdraft calculator. Starling, who has capped the rates at 35%, will be one of the cheapest banks to borrow from. It is because most of the banks have capped their overdraft changes at a rate of 39%.

More banks announce changes

So far, HSBC and its affiliated banks First Direct and M&S Bank, as well as Nationwide, have instituted the changes. They have announced an increase in overdraft fees to 39.9%, which might see some borrowers pay almost triple.

Monzo, which has also announced the changes, will be charging overdraft fees on a sliding scale depending on credit score. The bank announced a tiered overdraft last week, which will replace its 50 pence a day fee on all borrowing. The bank will charge customers 19%, 29%, and 39% depending on their credit rating.

The bank has also indicated that it will do away with the fee-free buffer as part of the changes. Currently, if a customer borrows £1,200 for six days, they pay £3. But under the new regime, they would pay £3.46, £5.08 or £6.59 depending on their credit rating.

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Rebecca White

Rebecca White is chief editor at Rebecca has an extensive amount of knowledge on financial subjects including short-term loans & debt consolidation in the UK and USA. Rebecca has wrote for many publishers such as Debt Secret, My Money, VL and more.