Bank customers ‘in the red’ will fork out an extra £52 million

Just six months into the year and some of the UK’s leading banks and building societies have found a way to generate additional revenue of over £52 million by making sneaky increases to authorised overdraft rates, according to new analysis from uSwitch.com.

While the Bank of England base rate has risen by 0.5% (currently 5.5%) since the beginning of the year, nine banks have increased authorised overdraft rates by an average of 0.93%. However, some banks have hiked overdraft rates up much higher including Halifax and HSBC, by up to 2% EAR, and NatWest by up to 1.46% EAR.

To make matters worse, over the same period just two of these nine banks (totaling six accounts) have increased in-credit interest rates by an average of just 0.02% AER. In fact customers on the Halifax Current Account have seen overdraft rates increase by the highest level (2% EAR), and a cut to the in-credit rate of 1% AER.

Mike Naylor, personal finance expert at the independent online comparison and switching service, uSwitch.com, said: “In anticipation of the OFT’s ongoing investigation into current account default charges, many banks are already putting measures in place to recoup the revenue they may lose if fees are capped. Consumers are typically charged interest in double-digits for using authorised overdrafts and the recent barrage of increases will certainly hit them in the pocket. These banks have been very sneaky by just increasing overdraft rates and not the in-credit rates and we are pretty certain that the other banks will follow this trend by the end of the year.”

HSBC is the latest provider to increase overdraft rates and to date this sits at an average of 2% EAR. Lloyds TSB has also increased its authorised overdraft rates by up to 3.1% EAR in just nine months from an average of 14.8% EAR to 16.1% EAR. This is not good news for the bank’s 7.8 million current account customers. Lloyds TSB currently holds around a quarterof the UK's current account market, which means that these three increases will result in the bank generating an extra £23 million in the next year, with 2.72 million of their customers regularly being overdrawn. Over the same period Lloyds TSB has increased its credit interest rates on these current accounts by an average of just 0.12%.

Mike Naylor concluded: “We would recommend that consumers keep a very close eye on the interest rates on their current account and look to switch away from providers that start making sneaky changes. For example, customers of Lloyds TSB should consider switching away to a provider that charges lower overdraft rates. Alliance & Leicester’s Premier Direct current account, which offers a 0% 12 month introductory rate reverting to just 5.9% EAR (typical). A customer switching to this account with the average overdraft of £677 would save £109.06 in the first year.”