Bank overdraft charges have increased 20% in 12 months

27 November 2008 / by Rachael Stiles
Customers who go into the red with their current accounts are now paying an extra £5 for every transaction that makes them exceed their overdraft limit, as bank charges have increased by 20 per cent since this time last year.

According to MoneyExpert.com's analysis of the current account market, banks are charging their customers even more for going into the red, despite an ongoing High Court case between the banks and the Office of Fair Trading, intended to test the fairness of the charges.

Last November, the majority of customers were charged £25 each time they went over their overdraft limit or bounced a cheque, but this has now climbed to £35, which could affect as many as a quarter of adults in the UK.

The higher overdraft fees reflect the increasing cost of lending for customers in the wider market with mortgage rates and other loans also

becoming more expensive in the last 12 months as lending conditions have deteriorated between the banks and has been passed on to borrowers.

The interest rates charged on overdrafts have also increased, by 1.44 per cent over the same period, MoneyExpert.com found, charging an average 11.67 per cent last year compared to 13.12 per cent now.

"We're approaching the most expensive month of the year and for those people already in their overdrafts the advice is clear, keep a close tab on your outgoings. A £30 charge isn't the Christmas present most of us are after and if you want to avoid these costs then watch your balance." urges Sean Gardner, director of MoneyExpert.com.

"Across the board borrowing is increasingly expensive and those customers living in their overdraft need to be aware that in the majority of cases they'll pay a premium for this cash."

He added that "In some ways these increased charges are surprising. You'd expect the high profile court battle with OFT to have made banks nervous about putting up charges while they're still under review."

And it's bad timing for households which are already struggling to keep up with the cost of living, with more than 10 per cent of people missing a mortgage or personal loan payment or credit card bill in the last six months, MoneyExpert's Missed Payments Index revealed.

The FSA has currently put a freeze on reclaiming bank charges but thousands of customers got their money back before the test case started and consumer campaigners are still urging customers to get their claims in, in the hope that the OFT emerges the victor.

© Fair Investment Company Ltd