As if it already didn’t cost you an arm and a leg if you go into the red on your current account, the largest retail banking provider in the UK has announced it will be raising the costs of setting up overdraft facilities even higher in the near future.
Taxpayer-owned Lloyds TSB has plans to raise the cost of setting up an overdraft by 20 per cent for some 17 million of its banking customers. In addition to the increased set up costs, the bank is also raising its overdraft interest rates to an eye-watering 19.94 per cent, making Lloyds the only Big Five high street bank where credit card spending is less expensive than relying upon an overdraft.
The new rates, which go into effect on 2 October, are grossly unfair to long-time Lloyds customers already reeling under the onslaught of pay freezes and low interest rates on savings accounts, industry experts say. With the Bank of England setting its base rate at 0.5 per cent and keeping it that way for more than three consecutive years, many experts have questioned how Lloyds can justify raising its rates and fees so high, especially at a time where so many Brits are suffering due to the bleak economic outlook.
Consumer Action Group founder, Marc Gander, called the move a cynical and nasty one on the part of Lloyds, especially as British households have become reliant on their overdraft facilities much more often in the wake of the bank-precipitated financial crisis.
Lloyds is Britain’s biggest provider of current accounts with 22million customers including its Halifax arm.
With the financial crisis in the eurozone spilling into Britain, bank profits have come under threat. As a result, they are trying to squeeze more out of customers who run out of cash at the end of the month.
Currently, Lloyds customers who arrange to have an overdraft pay between 12.43 and 19.28 per cent, depending on the type of account they are in. Customers also pay £5 a month for the right to be overdrawn.
From October, the rates on all accounts will increase to a minimum of 15.43 per cent, rising as high as 19.94 per cent. The monthly cost increases to £6.
Those hit with the biggest interest rate are customers in Lloyds’ Classic account. This is a free account and is most likely to be used by cash-strapped customers.
It means that on each £1,000 borrowed for a year, they will pay £199.40 before any debt is scratched off.
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