Overdraft customers ‘easy’ target for British banks that have put up charges despite interest rates being at historic lows, report shows

News - Banking

Written by Ray Clancy

Tuesday, 14 September 2010 08:41

Overdraft rates in the UK are at an all time high despite no change in the bank base rate for the last 18 months as customers become an easy target for banks, it is claimed.

In the last 18 months, more than a quarter, some 26%, of current accounts have seen increases in their authorised overdraft rates. The biggest increase has been experienced by Barclays Additions Active customers, who have seen a 8.4% increase in the last 18 months, according to a report from moneyfacts.co.uk.

It says an Additions Active customer with a £1,000 overdraft would have seen their annual overdraft costs increase by £28 to £211, figures take into account the £300 buffer.

‘Overdrafts customers are an easy target for banks, particularly in the current environment when many people regularly use an overdraft to get by each month. While the majority of customers use an overdraft as a buffer facility, some have no alternative but to regularly push their overdraft to the limit,’ said Michelle Slade, spokesperson for Moneyfacts.co.uk.

‘It is those customers that will be hit hardest by increases, which will only serve to make a bad financial situation worse. Customers are unlikely to complain or switch provider due to a small increase in rate, but when multiplied by the millions of customers each bank has, these rates soon generate increased revenue,’ she explained.

‘The UK currently has a high level of unemployment, which is likely to get worse when public sector job cuts filter through. The first thing customers forgo when struggling to make repayments is unsecured lending, in particular repaying an overdraft. The increased risk of customers defaulting is being past on through higher rates, but if the customer doesn’t default the increase just creates further revenue for the bank,’ she added.

The research names the worst offenders in terms of charges. After Additions Active the second highest increase is the Northern Choice Plus account from Northern Bank (NI) which has seen the overdraft charge rise 6.86% since March 2009 and the same bank’s Northern Choice Account which has gone up by 5.82%.

Next in line is Barclays Premier Life account, up 5%, Citibank’s Access Account, up 4%, Cumberland BS’s Standard Current Account up 3% and Royal Bank of Scotland’s Royalties Private account, up 2.64%.