Current account costs - overdraft rates on the rise

Banks and building societies have been taking the opportunity given by this years two base interest rate increases to boost their overdraft rates. A number of the main current account providers are now raising their overdraft rates each time the base interest rate increases, even though their accounts are not directly linked to the Bank of England base rate.

With many people reliant on an overdraft facility for their day-to-day living, such increases, however small, could prove to be a big revenue earner for the banks.

Michelle Slade, analyst at Moneyfacts, commented, "Any customer who has an overdraft with these providers should take the opportunity to review their banking arrangements, as some of the overdraft increases we have witnessed are quite substantial, especially as some of these deals were already less competitive when compared to some in the market.

"Not only have rates risen, but providers are also tweaking their overdraft terms and conditions. Lloyds TSB has removed its £10 fee free buffer and more recently HSBC has announced that it is removing its paid item fee structure. It will now charge an overdraft arrangement fee."

The increases are being interpreted by some as an attempt to pre-empt any move by the Office of Fair Trading to reduce banks penalty charges.

The biggest increase announced in the last six weeks, which takes effect on January 2, is a 1.44% rise on the overdraft rates on offer with the Natwest Gold account. Lloyds TSB has raised its overdraft interest rates by an average 0.30% and HSBC by an average of 0.7-1.10%, depending on the account.

13 December 2006 © Moneyextra.com

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