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Overdraft rates hit all time high

Overdraft rates hit all time high

Category: Banking

Updated: 14/12/2012
First Published: 10/09/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Despite the base rate of interest being tagged at the historical low of 0.5% for the last 18 months, overdraft rates have shot up during the period.

Recent figures from the Bank of England showed that overdraft rates are currently at an all time high.

In addition, Moneyfacts.co.uk research shows that more than a quarter (26%) of current accounts have been the subject of increases in authorised overdraft rates over the last year and a half.

Customers of Barclays with an Additions Active current account will have seen the authorised overdraft rate almost double since March 2009, with it rising by 8.40%, up to 18.30%.

A customer with a £1,000 overdraft would have seen their annual overdraft costs increase by £28 to £211.

Northern Bank (NI) has also implemented some steep rises, with the authorised overdraft rate on its Northern Choice Plus and Northern Choice accounts rising by 6.86% and 5.82% respectively.

However, with the accounts with the bank are still only charging rates of 9.37%, they still offer some of the best value overdrafts on the market.

There are some accounts from well known high street banks and building societies that charge upwards of 18% for overdraft borrowing.

They include NatWest (Advantage Gold - 19.49%), Nationwide (FlexAccount – 18.90%), Barclays (Bank Account – 19.30%), Royal Bank of Scotland (Royalties – 19.49%) and Norwich & Peterborough Building Society (Gold Current Account, less than £500 per month funding - 20.90%).

"Overdrafts customers are an easy target for banks, particularly in the current environment when many people regularly use an overdraft to get by each month," said Michelle Slade, spokesperson for Moneyfacts.co.uk.

"While the majority of customers use an overdraft as a buffer facility, some have no alternative but to regularly push their overdraft to the limit.

"It is those customers that will be hit hardest by increases, which will only serve to make a bad financial situation worse.

"Customers are unlikely to complain or switch provider due to a small increase in rate, but when multiplied by the millions of customers each bank has, these rates soon generate increased revenue."

If your overdraft rate is spiralling out of control it could be worth checking the Moneyfacts.co.uk Best Buy tables to see what else is on offer in the current account market.

As well as lessening your overdraft rate, you may benefit from a cash incentive to switch.

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.