OVERDRAFT interest charges could be higher than credit card costs under new banking rules, a consumer charity warns.

Citizens Advice Scotland (CAS) says new rules set to come into force within three months could hit the public in the pocket.

Banks have until April to enact changes ordered by the Financial Conduct Authority (FCA) earlier this year.

By then, arranged and unarranged overdraft rates have to be aligned and banks won’t be able to apply fixed daily or monthly charges. The move also covers fees for having an overdraft facility.

The move is intended to curb the most severe unarranged overdraft rates and charges, which in some cases were higher than those levied by payday lenders and tended to affect the worst-off customers.

But bringing arranged and unarranged overdraft rates into line means costs are likely to go up for those who regularly use an arranged overdraft.

According to CAS, interest rates on these are now likely to be higher than those for credit cards.

Two major lenders – Nationwide and HSBC – have announced they plan to set their rate at 39.9% APR.

With the deadline just months away, CAS is urging Scots to address their spending habits now, and is calling on the country’s banks to avoid “unreasonable” interest rates on overdrafts.

CAS financial health spokesperson Myles Fitt said: “Ensuring a single consistent overdraft interest rate will have some success in clamping down in the most pernicious of fees and interest charge and we welcome that, but other people who are used to lower overdraft costs may find themselves exposed to higher interest charges as a result.

“Lots of people in Scotland will be living on their arranged overdraft, with payday essentially clearing their debt and getting them back into the black. These charges could see them racking up unexpectedly higher interest charges on a monthly basis, for those on the best deals currently. This could have real knock on effects for people who are just about managing when it comes to their finances and who have come to rely on lower rates of interest for arranged overdrafts. It’s vital that banks recognise that lot of people are struggling with the cost of living and set these rates at a fair level. Meanwhile, if people need help with their finances they can turn to the Citizens Advice network.”