Bank accounts fall victim to rate cuts

13 January 2009

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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