Overdraft rates on the rise

Interest rates on agreed bank overdrafts are at their highest for ten years.

Figures from Moneyfacts, the financial information organisation, suggest that the average rate on authorised overdrafts is a current 14.2 per cent.

This is the highest since May 2000 when the official Bank of England interest rate stood at 6 per cent, way above the 0.5 per cent at which it is set at the moment.

The past decade had seen a decline in overdraft rates, which reached their lowest – 11.8 per cent – in May 2004.

One reason for the increase has been a series of courts cases involving the fees charged by banks on unauthorised overdrafts.

As a result, a number of banks have altered the way they charge for overdrafts that have not been agreed.

The reduction in fees may have played a part in the rise in interest charged on authorised overdrafts.

Michelle Slade of Moneyfacts said: “Changes made to reduced unauthorised borrowing charges meant banks lost a significant revenue stream.

“As one revenue stream closed, inevitably they have moved to find another. The loss of income gained from a minority of customers is now being recouped from all customers who use an agreed overdraft.”

But the British Bankers’ Association (BBA) described the explanation as too narrow.

A spokesman for the BBA argued that Moneyfacts were comparing present interest rates with interest rates that were available in times when credit was more open.

He said: “The interest rates offered during that period and the cost of banking were unsustainable. The economics of the industry has changed. To point out one factor as the main influence on pricing makes no sense.”

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