Overdraft rates soar

Despite a 2.75% cut in base rate in the space of a year, overdraft rates have continued to increase, with Yorkshire Bank and Clydesdale Bank increasing rates by as much as 7.31%.

As expected, credit interest rates on current accounts have reduced, but none of the major players have passed on the cut in full. However, Alliance & Leicester has bucked the trend by increasing rates on its Premier Direct Current by 1.88% to 8.19%.

Michelle Slade, analyst at Moneyfacts.co.uk, comments: "Customers who maintain a credit balance will be pleased that they have not had the full impact of the cut passed on to them. However, with increasing costs, it is likely more people than ever 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.

"Many people are finding that every penny counts, so it has never been as important to make sure you get the best current account to suit your needs.

"If you are regularly in the red, then opt for an account with the lowest overdraft rate. Alliance & Leicester charges 0%, with no charges for the first 12 months. After 12 months the account costs 50p per day, max £5 per month.

"If you maintain a credit balance, choose an account paying a good rate of interest. Alliance & Leicester currently pays 8.19% on balances up to £2.5K. However, this is an introductory deal for 12 months. After this time the rate reverts to base rate less 1%, which may not be so competitive in this period of low interest rates.

"Halifax pays 5% credit interest on its High Interest Current Account on balances up to £2.5K and unlike the Alliance & Leicester account, it is not an introductory rate.

"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."