Overdraft interest rates go up

Recent reports have indicated that some banks and lenders have raised their overdraft interest rates by huge amounts over the past year, by far exceeding the interest rate rises that have been imposed by the Bank of England in terms of the base rate.

In some cases there has been an interest rate rise of three percent on overdraft borrowing over the past twelve months, whereas the total base rate rise has been one percent. Some of the costliest overdraft charges stand at around twenty percent, which is almost four times the Bank of England’s base rate.

Experts think that this is yet another move by banks to try and generate more profit from customers following the huge financial losses that have resulted from moves such as capped credit card penalty fees and reclaimed bank charges. Many consumers are unaware of the raised overdraft interest rates because the majority of consumers with overdrafts do not take note of the fluctuation of rates on their overdraft, and banks certainly do not make a big song and dance about it.

An investigation showed that the leading banks in the UK are all charging hefty interest rates on overdrafts, which means that they are netting huge profits from those that use their overdraft facilities on a regular basis. For instance, both Lloyds TSB and HSBC have raised their overdraft interest rate charges by over three percent since last August, which is over three times the interest rate rise on the base rate.

One financial analyst stated: ‘A few providers have taken full advantage of the opportunity to increase their rates, but instead of passing on the extra costs of the base rate rise, many have exploited the situation.’

Tom Smith
17th June 2007

Tags: bank of england, banks, overdraft, interest rates, Banking