Overdraft rates '40 times the base rate'
Published 1 March 2012 by Lucy Bower
It has never been so expensive to use your overdraft, as the average interest on authorised overdrafts is currently more than the average interest on a credit card.
Interest rates on overdrafts, credit cards and mortgages are at a three year high, despite the low base rate of 0.5%, Bank of England figures show.
The Bank of England has kept the base rate low since March 2009 in an attempt to stem some of the effects of the financial crisis, although the Daily Mail reports that families in debt are struggling with the interest rates on financial products like overdrafts - which it reports are currently 40 times higher than the base rate.
Bank of England figures suggest the average 'authorised' overdraft interest rate was 19.51% at the start of this year, which is reported to be the highest level since the Bank's records began.
What this means for bank account customers with overdrafts is a further drain on their finances, at a time when money is tight for many people. For example, you would currently pay £195 in you were overdrawn by £1,000 for one year. That's on an authorised overdraft - if you exceed your limit without your bank's permission, you could pay a significant amount more.
Other options for borrowing include credit cards - the average interest on one at the moment is 17.32%, although many consumers are paying more.
It can work out far cheaper to live without an overdraft at all, or keep it for emergencies only.
However, if you're living in an overdraft at the moment and you have exceeded your limit at any point, you might have damaged your credit rating. There are accounts that can prevent this, however - some basic bank accounts don't come with an overdraft facility, for example, while others won't charge people who do accidentally go overdrawn.
You can apply for the thinkmoney Managed Current Account without a credit check, and the account comes without an overdraft to make sure you can avoid interest charges like these again.