Overdraft rates reach record highs

Customers with personal and business bank accounts have recently faced rocketing overdraft fees that have reached all-time record highs.

Banking industry experts have recently come forward in condemnation of the high interest rates levied on those who overdraw their current accounts.

According to the Bank of England authorised overdraft rates – which are agreed upon in advance of any such occurrence – reached a record high of 19.09 per cent this past October.

What this translates to for the average customer if they become overdrawn is that they will be paying a fee that exceeds the BoE-set 0.5 per cent base rate 38 times over.

This means that regardless of any additional fees or charges, a £1,000 overdraft over as 12 month period would cost a banking consumer almost £200.

Some banks charge even higher.  Partially nationalised Lloyds TSB not only charges its customers a £5 monthly fee for overdraft protection, it carries a 19.3 per cent interest rate on any overdrafts.

One financial analyst recently commented on the high fees.  Informational website’s Moneynet.co.uk’s Andrew Hagger stated that unauthorised overdrafts are one thing, but to be charged an exorbitant rate after seeking permission to is another one altogether.

What’s even worse, said Mr Hagger, is the amazing disparity between high overdraft rates in comparison to the paltry credit interest given on current accounts that are kept in the black.

The average current account holder earns 0.19 per cent in credit interest.  After the basic tax rate is taken into account, a £1,000 current account would earn only £1.50 over the course of one year.

Banks fought hard for the right to impose exorbitant fees upon their customers.  In December of last year the Office of Fair Trading lost their battle with the UK’s financial services institutions in order to do so.

In spite of being victorious, banks came to the realisation that a great many of their customers were not happy with their overdraft fees.

Prior to last December, there were two rates typically in place: approximately 10 per cent for authorised overdrafts, and around 20 per cent for unauthorised ones.  Additionally some borrowers could be subject to fees of up to £38 for every instance of becoming overdrawn.

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