Banks hike rates on overdrafts
Britain’s banks have been raising their current account overdraft rates over the past year, in spite of a 2.75 percentage point cut in the Bank of England base rate over the past 12 months.
According to new research by Moneyfacts.co.uk, the financial comparison site, overdraft rates have increased by as much as 75 per cent amongst some banks. Furthermore, interest paid on current accounts which are in credit have also fallen.
Clydesdale and Yorkshire banks, which are both owned by the Australia Bank Group, were highlighted as the worst offenders, raising their authorised overdraft rates from 9.64 to 16.95 per cent during the past 12 months. Meanwhile, both banks only pay 0.1 per cent interest on any credit balances in their current accounts.
Nationwide was another offender, raising its overdraft rate from 9.9 to 12.9 per cent – a 30 per cent increase – while cutting its credit interest rate from 4.25 to 3 per cent.
“Customers who maintain a credit balance will be pleased that they have not had the full impact of the cut passed on to them,” said Michelle Slade, an analyst at Moneyfacts.co.uk. “However, with increasing costs, it is likely more people than ever are going overdrawn.
“Bank base rate has decreased significantly in the last year, but Abbey, Barclays Bank, Clydesdale Bank, First Direct, HSBC, Nationwide BS, Norwich & Peterborough BS, Royal Bank of Scotland, Smile and Yorkshire Bank are all charging their customers more than this time last year.”
Ms Slade added that any customers who are regularly in the red should consider switching to Alliance & Leicester, which charges 0 per cent for the first 12 months, and then 50p per day, up to a maximum of £5 a month , thereafter. For those who are usually in credit, Ms Slade recommends Halifax’s High Interest Current Account, which pays 5 per cent on balances of up to £2,500.
“Many consumers stay with accounts paying low rate of credit interest and high overdraft rates because they think it is too much hassle to switch, but with all the major providers offering switcher services, the process can be done automatically for them,” she added.
A spokesperson for Clydesdale and Yorkshire Banks defended their interest rates: “The changes reflect current market conditions and still ensure that our product remains very competitive compared with equivalent accounts offered by competitors.”
A spokesperson for Nationwide pointed out that the building society still has one of the lowest overdraft rates and highest credit interest rates in the market.
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