Current account customers have seen the interest they pay on their overdrafts increase across the market, despite the base rate remaining static.

More than a quarter of current account customers have had their overdraft rates increased over the last 18 months, according to research from Moneyfacts.co.uk, even though the Bank of England has kept the base rate at the same record low level during that time.

Some overdraft rates have gone up by as much as 8.4 per cent, the study shows, which equates to a £28 increase in the annual cost of a £1,000 overdraft. There is also a significant disparity between the highest and lowest overdraft rates on the market, with one of the highest rates bring over 20 per cent, while one of the lowest is just over 11 per cent.

Michelle Slade, spokesperson for Moneyfacts.co.uk, believes current account providers have increased their overdraft rates to cover the increased risk of customers being unable to repay their overdraft because of the current economic hardships. 

Unsecured lending like overdrafts is the first outgoing to be neglected if times are tough, she said, but accuses banks of profiteering from customers who do not default.

“Overdraft customers are an easy target for banks, particularly in the current environment when many people regularly use an overdraft to get by each month. 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,” Ms Slade added.

But, she said, customers are unlikely to compare current accounts and switch providers as a result of a small increase in their overdraft rate, so banks are increasing their revenue at their customers’ expense.

© Fair Investment Company Ltd

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