Base rate lottery

In the space of just over a year we have seen three base rate increases followed by two base rate cuts.

With everyone’s attention focused on mortgage and savings rates, some institutions have used the changes in base rate to increase their margins on current accounts.

Samantha Owens, head of personal finance at Moneyfacts.co.uk, comments: “It appears that some lenders have used the base rate movements as an opportunity to reduce credit interest rates and/or increase overdraft rates.

“Institutions such as Nationwide BS, Smile and Intelligent Finance have been quick to cut their credit interest rates in the last two base rate cuts, but failed to pass on the benefit of the previous three base rate increases to their customers.

“Anyone with an overdraft on a Yorkshire Bank or Clydesdale Bank current account plus will see themselves paying a hefty 4.12% more than at the beginning of 2007. Lloyds TSB was also quick to pass on up to 0.60% in the last two base rate increases, but as yet has not passed on any cuts to its authorised overdrafts.

“In the last year the battle on current accounts has really hot up. There are some great rates on credit interest to be found as well as much lower rates on authorised overdrafts for those who live in the red.

“Nationwide BS has cut its credit interest rates whilst offering best buy rates for overdrafts. It would appear it is trying to appeal to those who use their overdraft, rather than those who maintain a credit balance in their account.

“It may well be that the reasoning behind some of these changes is the ongoing credit crunch, but with further base rate cuts predicted during 2008 we will just have to wait and see if the institutions use the next base rate as an opportunity to increase their margins further.”