Authorised overdraft interest costs increase by 10% in two years

Andrew Hagger of Moneynet.co.uk looks at how the cost of an authorised overdraft has crept up over the last two years.

In recent times, much of the focus on the current account market, from consumers and the OFT has been on the level of unauthorised bank charges and penalty fees.

However whilst many have been arguing about the fairness of such charges and whether they should be refunded, the cost of authorised borrowing on current accounts has gradually been increasing in the background.

In February 2008 someone who was overdrawn by £1,000 for 6 months of the year would pay £69.25 in interest charges which equates to an average interest rate of 13.85%.

Moneynet.co.uk research reveals that the same scenario today would see costs increased by more than 10% as the £1,000 for 6 months would cost £76.63 (an average interest rate of 15.32%).

No doubt lenders will point to increased risk and default levels as a result of the spike in unemployment seen during the recession. However as and when the economy returns to a stronger footing and unemployment falls, I'm not convinced that the cost of borrowing will recede.

The figures above don't include the recent rate increases announced by Barclays which come into play at the end of April, and we may yet see more providers follow their move in the months ahead.

With savings rates falling whilst the cost of loans, credit cards and overdrafts are heading in the opposite direction, it's no surprise that many people are so disillusioned with financial services providers in the UK.