Sky-high rates for those in the red

Interest rates for bank customers who exceed their overdraft limit, or go into the red without an authorised facility from their provider have remained sky high over the last 12 months, despite a crash in the Bank of England base rate, according to MoneyExpert.com.

The base rate has fallen by 4.5% in the last 12 months to an historic low but the cost of borrowing without permission remains punitively high at an average 18.2%, a meagre 1.7% down on the 19.9% it stood at 12 months ago. Those customers who have authorised overdraft facilities are likely to have seen no change at all in the interest they pay their bank, with the average authorised overdraft rate remaining firmly fixed at 13.5% - 27 times higher than the base rate.

In the same 12 month period the average rate on instant access savings accounts has been slashed from 3.24% to 0.6%.

Several providers have even opted in recent weeks to increase the rates they charge customers for using an overdraft. Barclays has raised the rates it charges on eight of its 12 current accounts, with some accounts hiking rates by nearly a third. Nationwide has also recently announced increases, upping the rate on its FlexAccount from 17.9% to 18.9%.

Pierre Williams, Head of Research, MoneyExpert.com, said: “It’s galling for customers who’ve seen savings rates plummet over the last 12 months to realise that banks are refusing to budge on the rates they charge for overdrafts.

“Living in your overdraft is never a wise move, but many people rely on the flexibility overdrafts offer to tide them over in a difficult month. Banks stubbornly sticking to these punitive rates will be having a hugely detrimental effect on those for whom an overdraft is the only means of seeing out a difficult period.”

With the OFT investigation into bank charges ongoing, 80% of current accounts also continue to make punitive one off charges for customers who exceed their overdraft facility. These range from £5 upwards, with 16 current accounts charging £30 each time a customer uses an unauthorised overdraft.

Williams continued: “Even banks bailed out by the taxpayer have showed no let up. The average rate charged by the Royal Bank of Scotland for authorised overdrafts has dropped fractionally from 15.2% to 14.7%, but their average rate on unauthorised overdrafts remains at an extortionate 29.84%! We’ve lent them the money so they can sting us for huge sums when they lend it back.”

Barclays customers with Additions Active accounts have seen the biggest rise in their overdraft rates. The account does come with a £300 free overdraft, but for those exceeding that the interest rate will have increased from 9.6% to 12.9%. For someone with a £3000 overdraft, that represents an increase in interest payments over the year of just under £90.