There has been a unprecedented rise in authorised overdraft rates in the past 18 months. A new report reveals that 26% of current accounts have been the subject of rate increase on authorised overdrafts – despite 18 months of historically low interest rates.
Although the Bank of England base rate has stood at just 0.5% since March 2009, authorised overdrafts have shot up in cost. A customer’s authorised overdraft is the sum they have pre-arranged to borrow with their bank’s permission, should they need to do so.
Many banks now charge upwards of 18% for arranged overdraft borrowing, according to financial data experts Moneyfacts. Meanwhile, Bank of England figures show that overdraft rates are at an all-time high.
Overdraft rates hit borrowers hard
Barclays’ Additions Active current account customers will have seen their authorised overdraft costs double since March last year, Moneyfacts claims. Rates have risen from 8.40% to 18.30%, increasing the cost of a £1,000 overdraft from £28 a year to £211 a year.
Northern Ireland’s Northern Bank has also implemented steep rate hikes, with the cost of overdrafts on its Northern Choice Plus and Northern Choice accounts rising by 6.86% and 5.82% respectively.
Meanwhile there is a crop of high street banks and building societies charging interest rates in excess of 18% on authorised overdrafts. They include NatWest, which charges 19.49% on its Advantage Gold account, Barclays, which charges 19.30% on its Bank Account and Nationwide, which charges 18.90% on its FlexAccount.
Ditch your expensive overdraft rate
Michelle Slade, spokesperson for Moneyfacts.co.uk, says: ‘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 these customers that will be hit hardest.’
Melanie Green, Which? Money’s current accounts expert, commented: ‘The recent furore over unauthorised overdraft charges has helped to obscure the fact that arranged overdrafts can also be incredibly expensive. This spate of rate rises has compounded the problem, and leaves customers of some of the biggest banks paying close to 20% interest.
‘If you use an overdraft regularly, it’s important to make sure this is costing you as little as possible. Use the Which? current account finder to help track down the best bank account for you, or take a look at our Best Rate table to see which accounts we rate for in-credit and overdrawn customers.’
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