Bank accounts fall victim to rate cuts


Banks and building societies are hitting current account customers by reducing interest rates while increasing overdraft charges.

Research shows that the average in-credit interest on current accounts has fallen by 1.46% since February last year, while overdraft rates have risen by an average of 0.71%.

Most recently, Nationwide has lowered its in-credit interest without reducing its overdraft rate. The building society has cut its interest rate from 4% last February to just 0.5%, while at the same time hiking its overdraft rate from 9.9% to 12.9%.

It is not the only provider to be squeezing current account customers.

HSBC has reduced its in-credit rate of interest to zero from 0.1% last year and increased the cost of its overdraft from 18.8% to 19.9%.

Halifax’s in-credit rate is now 2.5%, a big cut from the 6.17% rate paid last year. Its overdraft rate remains 15.9%.

First Direct has made no change to its in-credit rate, but at 0% it couldn’t go any lower anyhow. Its overdraft rate of interest is 15.9%, up from 12.9% last February.

Lloyds TSB’s overdraft is now 2.5%, down from 4.25%, although its overdraft rate is still 18.9%

NatWest is the only major provider to retain its in-credit interest and actually reduce its overdraft rate, albeit by just 0.75%.

Kevin Mountford, head of banking at, says the average difference between the in-credit rate and the overdraft rate is now 9.41% - 2.17% more than in February.

"It's fair enough that the average in-credit rate among the leading providers' main accounts has dropped by 1.46%, noting where we are with the base rate, but overdrafts should have fallen by a similar amount,” he adds. “To see overdrafts rise by 0.71% over the same period has the banks effectively charging 2.17% more on overdrafts than they should.” estimates that, with £600 million outstanding in overdrafts, the changes over the past year are equal to a £13 million boost to the banks' bottom line.

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