Authorised overdraft rates have hit their highest level in a decade, with the average rate now at 14.22% despite the base rate being at a mere 0.5%.
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.