Overdraft rates 'highest in a decade'

According to financial information service Moneyfacts, authorised overdraft rates have hit their highest level for ten years.

The average interest rate applied to agreed overdraft is currently at 14.22%, despite the Bank rate remaining at a record low of 0.5, putting it at the highest since May 2000.

The last time overdraft rates were this high, the Bank rate stood at 6%.

The research from Moneyfacts shows that authorised overdraft rates fell to their lowest point in a decade, to 11.81% in May 2004.

However, some banks changed the way in which they charge people who go overdrawn after continued debates and court cases regarding the unauthorised overdraft charges.

This has cut the amount of  income brought in by people who go into the red without permission.

"Changes made to reduced unauthorised borrowing charges meant banks lost a significant revenue stream, something they can ill afford in the current climate," said Michelle Slade of Moneyfacts.

"As one revenue stream closed, inevitably they have moved to find another.

"The loss of income gained from a minority of customers is now being recouped from all customers who use an agreed overdraft.

"Banks are likely to be making more now from these increases than they ever were from penalty charges."

However, the British Bankers' Association (BBA), which represents the banks, branded this theory as too simplistic.

"[Moneyfacts] are comparing interest rates today with interest rates during the easy credit era," a BBA spokesman said.

"The interest rate offered during that period and cost of banking was unsustainable. The economics of the industry has changed.

"To point out one factor as the main influence on pricing  Savings Accounts makes no sense."

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