Millions of borrowers with Lloyds, Halifax and Bank of Scotland accounts are to see their overdraft charges slashed in a move that could save some households up to £299 a year. In a major U-turn on previous hikes, Lloyds Banking Group is cutting punitive overdraft rates for new and existing customers - scrapping higher brackets of 39.9% and even 49.9%, and replacing them with a flat 29.9% rate. The change comes just months after the group introduced a controversial four-tier overdraft system, with rates of 19.9%, 29.9%, 39.9% and 49.9% - linked to creditworthiness.

But under the latest reform, the highest tiers are being scrapped altogether. It means millions currently being stung by the top rate will now pay significantly less in borrowing costs. For example:

Old Rate New Rate Saving on £1,000 Overdraft (12 months)

49.9% 29.9% £299

39.9% 29.9% £100

A spokesperson for Lloyds Bank said: "We know many customers find it helpful to have an overdraft there for life's unexpected costs and, to make that as affordable for our customers as possible, we're lowering the interest rate most customers typically pay when they use an overdraft.

"This means the cost of using an overdraft will become cheaper for many, with Lloyds, Halifax and Bank of Scotland now offering one of the lowest representative overdraft rates on the market."

* Credit unions: These community lenders offer much lower rates than banks - typically between 12.7% and 42.6% APR - and in many cases can provide same-day access to funds.

* Emergency savings: Tapping into savings may avoid the need to borrow altogether. But for those who can't, help is available.

The changes will come into effect in the coming days, with affected customers being notified at least a week in advance.

Lloyds had previously defended its tiered system, claiming it reflected responsible lending and individual credit histories. But the new flat rate will now apply across the board for new applicants - a significant shift that also simplifies the system.

Other options to beat the borrowing trap

Borrowers still concerned about high overdraft costs have a number of alternative options:

* 0% balance transfer credit cards: NatWest currently offers a 34-month deal with no interest, though there's a 3.49% transfer fee. Tesco Bank offers 33 months at 0%, with a lower 3.19% fee.

Where to turn for debt help

Financial experts are warning households not to turn to claims firms or expensive payday loans. Free support is available from several organisations:

Citizens Advice - 0800 144 8848 (England), 0800 702 2020 (Wales)

StepChange - 0800 138 1111

National Debtline - 0808 808 4000

Debt Advice Foundation - 0800 043 4050

Tools like Debt Management Plans and IVAs are explained on MoneyHelper.org.uk and gov.uk.