The calm before the storm - overdraft rates set to increase

Published:

04/06/2009

Topic:

Press Release,Mortgages

Most banks have counter-intuitively been increasing overdraft interest rates (Equivalent Annual Rates) even whilst the Bank of England has been cutting the Base Rate.

• Overdraft interest rate set to increase again following Nationwide and Barclays increase

Analysis by price comparison site moneysupermarket.com shows current account overdraft interest rates have risen by an average of 1.54 percentage points since February last year.

With the Base Rate static at 0.5 per cent since March, overdraft rates had stabilised until Nationwide bucked the trend this week and hiked the cost of going overdrawn on its FlexAccount by one percentage point to 18.9 per cent EAR.  Nationwide has now increased its overdraft rates by six percentage points since December last year, when the rate was at 12.9 per cent, and almost doubling them from 9.9 per cent last February.

Barclays Bank is increasing the overdraft rate on its Bank Account after the 12 month introductory offer from 17.9 per cent to 19.3 per cent from Monday 8 June.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The moves by Nationwide and Barclays are disappointing - whilst base rate remains static banks really have no excuse to hike prices.  There is little doubt these moves will kick-start a series of rate reviews by others, meaning struggling bank customers are going to be stung with a steep rise in the cost of going into the red."

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