Banks push up cost of an overdraft

Overdraft rates have been hiked on one in four current accounts during the past 18 months, pushing the cost of going into the red up to a record high.

Around 26 per cent of current accounts have increased the interest they charge customers who have an authorised overdraft since March 2009, with some raising their rates by more than 8 per cent according to Moneyfacts.co.uk. This is despite the fact the Bank of England base rate has remained on hold at 0.5 per cent since March last year.

Michelle Slade, spokeswoman for Moneyfacts, said: "Overdraft 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."

"It is those customers that will be hit hardest by increases, which will only serve to make a bad financial situation worse."

But the British Bankers' Association defended the overdraft interest rate rises, pointing out that the base rate was only one of the factors that affected borrowing rates.