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Overdraft fees are set to undergo the biggest overhaul in a generation, according to the UK’s financial regulator.

The Financial Conduct Authority (FCA) has announced a series of changes that will come into force from April 2020. They include scrapping daily or monthly fixed overdraft fees, as well as higher fees for unplanned overdrafts.

Instead, banks will be forced to charge a single annual interest rate on overdrafts, which much be clearly displayed on all advertising to allow consumers to make fully-informed decisions. It comes as figures show banks generated £2.4 billion from overdraft fees in 2017, with 30% of that coming from unplanned overdrafts.

The changes are designed to help stop consumers spiralling into further debt.

According to the FCA, around 19 million people in the UK use arranged overdrafts every year, with a further 14 million using unarranged ones. More than seven million also use both arranged and unarranged overdrafts.

The regulator said the new rules will mean the average cost of borrowing £100 through an overdraft would fall from £5 a day to less than 20p.

The FCA’s chief executive, Andrew Bailey, said: “Consumers cannot meaningfully compare or work out the cost of borrowing as a result of complex and opaque charges, that are both a result of and driver of poor competition.

“The decisive action we are taking today will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”

Gillian Guy, chief executive of Citizens Advice, said: “Overdraft charges can have serious knock-on effects for people’s debt and mental health. These new rules should help thousands of people from getting trapped in a debt spiral.

“If, after these measures are introduced, people still pay over the odds, the FCA should review the need for an interest rate cap to ensure no one is paying back more than twice what they borrowed.”