Overdraft rates hit all-time high
The last time overdrafts reached this level the base rate was at 6% in January 2001.
For example, Barclays Bank Additions Account’s authorised overdraft rate has increased from 12.9% to 18.3% within the last year, while the Norwich & Peterborough Building Society’s Gold Account for customers with regular balances of £1,500 or over increased from 9.74% to 11.74% in July 2009.
Following the Office of Fair Trading investigation into unauthorised overdraft rates, banks have reduced these charges. To recoup this lost revenue, authorised overdraft charges have been increased instead.
Michelle Slade, spokesperson for Moneyfacts.co.uk, says: “The loss of income gained from a minority of customers is now being recouped from all customers who use an agreed overdraft.”
If you regularly find yourself using your agreed overdraft, make sure you’re not hit with hefty interest rate charges.
Consider switching your current account
If your overdraft rate has gone up recently, consider switching to another current account – it’s easier than most people think.
Banks are obliged to co-operate to make the process smooth. Take two forms of ID, one with a photograph and the other with a proof of address such as a utility bill for example. After that, you need to fill in two forms: a new account application and a transfer form.
Once accepted by the new bank, in most cases it should take care of transferring your standing orders and direct debits. The whole transfer process can take up to a month so a good tip is to keep some money free in the old account in case of delays.
Some banks would inform your employer, but tell them yourselves to be on your safe side.
Once you're happy everything has been transferred over close your old account.
According to Moneyfacts, the overdraft best buys include the Gold Account with Norwich and Peterborough Building Society, which has an authorised EAR of 11.74% and an unauthorised EAR of 24.9%.
Cahoot's offering on its current account is 11.8% authorised EAR and 21.9% unauthorised EAR.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.