Current account roulette has odds stacked against you

Nationwide has become the latest current account provider to lower its in-credit interest without lowering its overdraft rate.

Nationwide's decision to join four other major providers with an in-credit rate of 0.5 per cent or less reflects the growing trend of banks and building societies to use Bank Of England decisions as an excuse to cut in-credit interest - but not to do likewise with overdraft rates.

With virtually every household in the UK having a current account, any decision involving them has a huge impact on the nation's wellbeing. Analysis by price comparison site moneysupermarket.com shows current account interest has fallen by 1.46 per cent since February, yet overdraft rates have risen by an average of 0.71 per cent.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The average difference between the in-credit rate and the overdraft rate is now at an alarming 9.41 per cent, 2.17 per cent more than in February.

"It's fair enough that the average in-credit rate among the leading providers' main accounts has dropped by 1.46 per cent, noting where we are with the base rate, but overdrafts should have fallen by a similar amount. To see overdrafts rise by 0.71 per cent over the same period has the banks effectively charging 2.17 per cent more on overdrafts than they should.

"With £600 million outstanding in overdrafts, that equates to a £13 million boost to the banks' bottom line.

"The wide discrepancy between in-credit and overdraft rates is hard to justify, and the way some banks have used base rate cuts to widen the margin is very disappointing. At one end of the scale we have two main providers offering a higher rate on in-credit balances than on its overdrafts - while at the other end we have two charging over 19 per cent on their overdrafts."

Nationwide has made the biggest move to the detriment of its customers since February. Its interest rate has plunged from 4.0 to 0.5 per cent while its overdraft has risen by 3.0 per cent.

Kevin Mountford continued: "Our polling has found Nationwide to be the nation's most trusted provider in each of the past two years, so these recent moves by it are very sad to see.

"Thursday's Bank Of England decision to slash another half per cent off official interest rates could be an opportunity for many banks to cash in again.

"Let's hope this time the story will be different, but with the pressure on mortgages and savings and the OFT court case hanging over the banks these institutions have to recover margin somewhere."