While many borrowers have benefited from the base rate cut in August – mortgage holders in particular – the same can't be said for those with overdrafts. Indeed, figures from our latest Moneyfacts Treasury Report, due to be published later today, show that despite the base rate cut of 0.25%, the average authorised overdraft rate has fallen by a miniscule 0.04% since the start of August.
This drop has done nothing to dent the overall rise in average rates either, with the average now standing at 14.10% EAR – down from 14.14% EAR in August, but up from the rate of 14.02% recorded in October 2015. Therefore, the latest cut has made little difference to those using their arranged overdraft, which will come as a disappointment to those who were looking to reduce their borrowing costs following the base rate cut.
Those who use an unauthorised overdraft fared slightly better, with the average unauthorised overdraft rate falling by double the amount – down by 0.08% over the same period – to stand at 13.25% EAR. However, again due to increases throughout the past year, the rate still stands 1.09% higher than in 2015.
At the same time, the average usage fee charged on current accounts each month is continuing to rise, with both authorised and unauthorised arrangements being impacted. As the table below shows, the averages now stand at £6.93 and £53.09 respectively, far higher than a year ago.
"Current account customers who use their overdraft on a frequent basis are highly unlikely to feel the effects of the Bank of England base rate cut of 0.25%, particularly if they are being charged a flat fee instead of interest," said Rachel Springall, finance expert at Moneyfacts.
"It's clear to see that the true cost of using an overdraft has steadily risen over the years, both in terms of interest and usage fees, which will be a worry to those who use it for borrowing in an emergency. Bank account customers who have more outgoings than income will be hit the hardest, particularly if they fall into an unauthorised overdraft, where the average usage fee has hit over £50 a month.
"As we see more providers introducing flat usage fees, the ability for consumers to compare the overdraft facility between accounts will hopefully become clearer, but this won't necessarily mean it will become cheaper. Interest rate cuts will not make much of a dent to this type of account, so reviewing accounts is essential.
"At a time where families are increasingly using unsecured borrowing to cover debts, it's becoming much too easy to fall into a spiral of debt. "
Get out of the debt spiral by seeing if you can find a current account that has more favourable overdraft rates.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.