Lloyds Bank customers will see a change to their arranged overdrafts from Friday 31 July, as the bank removes the £50 interest-free buffer previously available on its Select current account. Customers whose accounts are moved to the Classic account will no longer have this protected amount and may be charged interest from the first pound borrowed. The change affects how some people manage short periods of borrowing, particularly when payments leave their accounts before income arrives.
Lloyds Select Customers Moved to Classic Accounts
Lloyds is closing its Select current account and transferring existing customers automatically to the Classic account. Under the previous Select account terms, customers could use up to £50 of an arranged overdraft without paying interest.
The Classic account does not include an interest-free overdraft allowance. According to Lloyds, the arranged overdraft limit itself will not change as part of the move, but interest may now apply from the first day an arranged overdraft is used.
The representative arranged overdraft rate on the Classic account is currently 29.9% EAR variable. Lloyds states that the rate offered to individual customers can vary depending on how they manage their accounts and the credit information held by the bank.
Thomas Drury, money-saving expert at The Investors Centre, said the main effect of the change is the removal of the interest-free protection rather than the loss of access to an arranged overdraft.
“Someone might only go £10 or £20 overdrawn because a subscription leaves their account the day before their wages arrive,” he said. “Until now, that small amount may have stayed within the interest-free buffer. From July 31, the same transaction could begin attracting daily interest.”
Small Overdraft Balances Could Now Generate Interest Charges
Lloyds says interest is charged at the end of each day that an arranged overdraft is used. Customers who repay the borrowed amount before the end of the day will not normally pay interest for that day.
According to the figures provided by The Investors Centre, leaving £50 overdrawn for seven days at the representative rate of 29.9% EAR would cost around 25p in interest. Keeping the same amount borrowed for 30 days would cost approximately £1.09.
The impact becomes larger when higher balances remain unpaid for longer periods. Thomas Drury explained that a customer leaving £500 overdrawn for 30 days at the representative rate would pay around £10.87 in interest, while a £1,000 balance over the same period would cost approximately £21.73. The exact charge depends on the customer’s individual rate and the number of days the money is borrowed.
The change may be particularly relevant for customers whose salary, pension or benefit payments arrive close to the dates when household bills are taken from their accounts. Lloyds first contacted affected customers about the adjustment in March.
A Lloyds spokesperson said the bank had written to a small number of customers to explain the change to their interest-free overdraft amount. According to the spokesperson, customers would keep their arranged overdraft limit and were also provided with information about where to seek help if needed. The bank has advised customers to check their account balances and consider how the removal of the buffer could affect any regular use of an arranged overdraft.
