Fears Lloyds' overdraft fees will set a trend

Customers of Lloyds Banking Group, including Bank of Scotland, are being stung by swingeing rises in overdraft charges from 1 October.

The part-nationalised bank has announced its overdraft arrangement fee is to rise by 20 per cent from £5 to £6 a month. What's more, the overdraft interest rate is to rise across its entire range of accounts. All but Platinum and Premier account holders will have to pay 19.94 per cent on their overdrafts.

In further moves, in Lloyds' words to "help customers avoid charges", the bank is to introduce or increase interest and fee-free amounts on all authorised overdrafts.

"With the introduction of interest and fee-free overdraft facilities across our whole range of mainstream current accounts, all customers can now also enjoy peace of mind that, should they dip into their planned overdraft in the month, they can avoid incurring charges," Jatin Patel, the director of current accounts for Lloyds TSB, said.

Regardless of this sop to customers, experts fear that a major current account player upping its overdraft interest rates will lead to other providers following suit and increase the costs of going into the red for all customers.