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The Bank of England revealed yesterday that the average overdraft rate has reached a record of 19.65 per cent, which is nearly 40 times higher than the base rate, currently at an historic low of 0.5 per cent.
If you had an overdraft of £1,000 for a year, this means it would cost £196 – and this is before you have paid off a single penny of the actual debt.
To make matters worse, it comes at a time when millions of families are suffering a ferocious squeeze on their finances from low pay rises, tax rises and the high cost of living.
Andrew Hagger, a personal finance analyst from the website Moneycomms.co.uk, said: ‘The record cost of overdraft borrowing is an unwelcome drain on the family budget which is already being hammered by rising fuel, food and energy bills.
‘It is tough for consumers to swallow, and what is more worrying is that the official figures don’t take account of the increasingly common and more expensive flat fee tariffs.’ He said banks and building societies are increasingly changing their overdraft charges, and introducing a daily fee, rather than a high rate of interest.
For example, Nationwide’s new FlexDirect current account charges £1 per day for an authorised overdraft and £5 per day for an unauthorised overdraft, subject to a maximum charge.
Banks and building societies are also stinging homeowners with the highest variable mortgage rates for more than three yearsIt shows banks and building societies are also stinging homeowners with the highest variable mortgage rates for more than three years.
The average standard variable rate, known as an SVR, has hit 4.32 per cent, the highest average rate since March 2009, the month the Bank cut the base rate to 0.5 per cent.
This is the type of mortgage deal which homeowners are automatically moved onto when their current deal, such as a two-year fixed loan or a three-year tracker, comes to an end.
Many are ‘trapped’ on this rate because they cannot switch to a different deal or a rival lender because they are too high risk, are in negative equity or their deposit is too small.
In recent months, a growing list of lenders have been increasing their SVR, blaming the high cost of funding.
Banks, such as Halifax, Santander, Yorkshire Bank, the Co-op and Bank of Ireland, have all recently increased their rates in a move which hits their loyal customers.
The rate rises come at a time when banks are reaping the benefits from the £80billion Funding for Lending Scheme, launched in August, which is giving them cheap money.
Under the scheme, banks and building societies can borrow an unlimited amount of money for as little as 0.25 per cent as long as they maintain, or increase, their lending.
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