Lloyds overdraft rate rise

Following Lloyds TSB’s announcement to increase agreed overdraft interest rates for the second time in just three months - generating an estimated £19.32 million in revenue in the next year - Nick White, Director of Financial Services at price comparison and switching website uSwitch.com comments:

“Lloyds TSB’s decision to raise overdraft rates by up to 18.3% in just three months from 15.5% EAR to 18.3% EAR could not come at a worse time for the bank’s 8.1 million current account customers. The announcement will allow Lloyds tocash in on consumers’ Christmas splurge and, in many cases, their need to increase overdrafts to accommodate for this costly time of year.

“Lloyds TSB currently holds a quarter of the UK's current account market, which means that these two increases will result in the bank generating an extra £19.32 million in the next year, with 2.71 million of their customers regularly being overdrawn.

“This follows a series of ‘adjustments’ to Lloyds TSB’s current accounts terms and conditions in the past few months. They have also:

Removed the £10 ‘buffer’, which enables customers to exceed their authorised overdraft limit without incurring penalty charges if the unauthorised overdraft is less than £10.

Customers are no longer allowed to have one bank charge per year waived as a gesture of goodwill.

On top of this, they are also planning to increase monthly fees on the Premier Banking Account by 66% from £15 to £25 per month from the 1st January 2007.

“It is a worrying sign that Lloyds TSB is increasing overdraft rates so soon after the first wave of interest rises back in September when the OFT announced their investigation into current account default charges. In the last few months, Royal Bank of Scotland, Natwest, Smile, Yorkshire Bank and Clysdale Bank have already increased overdraft rates once. This move by Lloyds TSB could open the floodgates for these current account providers to implement more increases. There are also several banks that haven’t introduced any overdraft rate increases recently such as Abbey, Barclays and HSBC who may well follow suit and cash in on the opportunity.

“Customers of Lloyds TSB who regularly find themselves overdrawn should consider switching away to a provider that charges lower overdraft rates, such as Alliance & Leicester’s Premier Direct current account which offer a 0% 12 month introductory rate which reverts to a 5.9% typical EAR. A customer switching to this account with the average overdraft of £677 would save £107.30 in just one year.”