From April 2020 onwards, the United Kingdom's new overdraft rules will make the costs of overdrafts clearer and easier to compare with each other.

From that month onwards, banks can only charge for overdraft users a simple annual interest rate, without additional fees and charges.

According to the Financial Conduct Authority, all users of unarranged overdrafts will either be better off or see no change. In most scenarios, most consumers using arranged overdrafts will also have a better experience or see no difference. The regulator calculates that seven out of ten overdraft users will be better off or see no change.

An FCA spokeswoman told Compliance Matters: "We’re banning charges that make overdrafts look cheaper than they are. It is often unclear exactly what people were paying for their overdraft – with a mixture of interest rates as well as other fees and charges. Four in five consumers are not able to work out which overdraft is cheaper. We are fixing that so that people will now only pay a simple annual interest rate. They will know exactly what they have to pay for their overdrafts and find it easy to compare their costs with those at other banks.

"We are ending excessive unarranged overdraft fees that are often ten times as high as charges for payday loans. We anticipate the cost of borrowing £100 through an unarranged overdraft to drop from a typical £5 per day to under 10p per day. To improve transparency and to raise awareness of firms’ charging structures from July 2020 we are requiring firms to publish a range of overdraft pricing details. This information will highlight to consumers and third parties, including price comparison services and the media, the interest rates and the refused payment fees consumers are being charged on a product."