Credit card and overdraft costs hit three-year high
Image © Dougal Waters – Getty Images
The cost of using an overdraft or credit card is at its highest level in three years, despite bank base rate's current, historic low, according to new figures from the Bank of England.
Next week marks the three-year anniversary of base rate plunging to 0.5%. Yet banks and building societies have paid little attention, steadily ramping up their interest rates.
Cashing in on overdrafts
The average 'agreed' overdraft in January was a whopping 19.51%. That's the highest it's ever been since the Bank of England started collecting these records.
Here's how overdraft rates have moved over the past decade, and how that has compared to the bank base rate at that time.
| Year | Average 'agreed' overdraft rate | Base rate at the time |
|---|---|---|
| January 2002 | 17.09% | 4% |
| January 2003 | 15.51% | 4% |
| January 2004 | 15.45% | 3.75% |
| January 2005 | 15.08% | 4.75% |
| January 2006 | 16.1% | 4.5% |
| January 2007 | 17.16% | 5.25% |
| January 2008 | 17.5% | 5.5% |
| January 2009 | 18.02% | 1.5% |
| January 2010 | 18.95% | 0.5% |
| January 2011 | 19.09% | 0.5% |
| January 2012 | 19.51% | 0.5% |
That makes for pretty shocking viewing in my opinion. The average overdraft rate now stands at 39 times the bank base rate. Compare that to January 2005 when it was just three times base rate.
And remember, these are just the averages. There are some accounts charging even more vast rates on account holders who dip into the red.
Better overdraft options
Thankfully, not all providers are cashing in like this, with a clutch of banks offering decent overdraft facilities, if only for an initial period.
For example, the Santander Preferred account offers a free arranged overdraft for the first year you have the account (as well as a £100 welcome bonus just for taking out the account). Alternatively, the Co-operative Bank has a £200-fee free overdraft on its Current Account Plus.
Finally, there's the 1st Account from first direct, which boasts a £250 interest-free overdraft. As with the Santander account, you'll get a £100 welcoming bonus. And you'll get a further £100 if you decide to leave within the first year. Be warned though, you'll need to pay in £1,500 per month to qualify for the account, or else there will be a £10 fee.
Cashing in on credit cards
The rates on credit cards have also risen in spite of the record low base rate. The Bank of England's research found that the average interest rate on credit cards hit 17.32% in January, a level not reached since December 2001.
Here's how the average credit card interest rate has shifted over the last ten years, again compared to bank base rate.
| Year | Average credit card interest rate | Base rate at the time |
|---|---|---|
| January 2002 | 17.1% | 4% |
| January 2003 | 15.59% | 4% |
| January 2004 | 15.13% | 3.75% |
| January 2005 | 15.86% | 4.75% |
| January 2006 | 16.5% | 4.5% |
| January 2007 | 15.67% | 5.25% |
| January 2008 | 15.2% | 5.5% |
| January 2009 | 16.09% | 1.5% |
| January 2010 | 16.37% | 0.5% |
| January 2011 | 16.8% | 0.5% |
| January 2012 | 17.32% | 0.5% |
As you can see, average credit card rates have jumped 1% in the time that base rate has sat at 0.5%. It's now almost 35 times the bank base rate, compared to January 2008 when it was less than three times base rate.
Once again, it's worth bearing in mind that these are just the average rates. Some credit cards charge interest of more than 40%! With so many people struggling to make ends meet at the moment, it's pretty shocking that financial institutions are ratcheting up the interest they charge, while base rate remains mired at 0.5%.
Better credit card options
You don't have to put up with such horrendous rates on interest on your credit cards though.
If you have a big purchase coming up, then a credit card charging 0% on purchases is a good option. A whopping ten cards currently offer interest-free periods of more than a year.
| Card | 0% period |
|---|---|
| Nationwide BS Select | 17 months |
| Halifax all in Once MasterCard | 15 months |
| Marks & Spencer Money MasterCard | 15 months |
| Tesco Clubcard | 15 months |
| Barclaycard 14/14 Platinum | 14 months |
| Bank of Scotland All in One | 13 months |
| Creation Purchase MasterCard | 13 months |
| NatWest YourPoints World MasterCard | 13 months |
| Royal Bank of Scotland YourPoints World MasterCard | 13 months |
| Virgin Money 13/13 MasterCard | 13 months |
Alternatively, if you already have a stack of debt on a credit card, you can move it onto a 0% balance transfer card. These allow you to dodge interest for even longer than the best 0% purchase credit cards. Below are the top five balance transfer deals on the market today:
| Card | 0% period | Transfer fee |
|---|---|---|
| HSBC Visa* | 23 months | 3.3% |
| Halifax MasterCard | 22 months | 3.5% |
| Barclaycard 22 month Platinum | 22 months | 2.9% |
| Barclaycard Platinum | 21 months | 2.6% |
| RBS Platinum MasterCard | 20 months | 2.9% |
*Existing current account holders only
Of course, the trouble with a 0% card is that when the interest-free period comes to an end, you can face a pretty hefty interest rate. So it can be a better long-term move to go for a card that offers a low interest rate on your debt for life, and not just for a year or so.
Below are two of the best:
| Card | APR |
|---|---|
| Sainsbury's Low Rate card | 6.9% |
| Barclaycard Platinum Simplicity | 7.9% |
John Goodfellows and Aaron Williams comments are spot on. The Government is not here to run this Country but is merely part of the Establishment which runs around the Royal family, Lords and MP's. This Country is no different from Medievil times where the Royalty live like Kings and Queens and the tax payers are merely peasants whom are financially raped by the Establishment. The Queen the worlds richest women and she is taking money off the tax payers whilst 70% of this Country are living in poverty!!!
The Establishment don't want people to succeed because if they keep you in poverty you are weaker and have to work harder to keep afloat ..... result .... slave labour.
£2.3Billion to stage the Olympics .... and now it has cost £9.7Billion. The Lords and MP's sign of payments with the huge building firms and keep paying them more and more money .... then when the Olympics are over these Lords and MP's are appointed on the Board of Directors for these very same companies and recieve payments of several million pounds a year from these companies for the work they have done (not) and as a result the money has been laundered. Bush went to war on the basis that Iraq had weapons of mass destrucution. The only weapons of mass destruction were the weapons that the USA and Britain dropped and fired at them. Bush Junior and Senior made $6Billion dollars personally from the war as they had shares in the arms company that sold the weapons to the USA. Britains Establishment and authorities are as corrupt as Zimbabwe, Syria, Iran, Iraq and Syria all put togeather if not worse. People are waking up to the lies that are told to us through News on the TV and the Corrupt Murdoch corporation and the trash in the papers. This ****ry is not a democracy but a dictatorship state or nanny state. The MP's NEVER do what they claim or promise when they run their campaigns therefore it is not a demoracy for the simple reason you do NOT get what you voted for .... end result is that it is a scam. Walk or cycle where possible be free and spend as much money as possible in other countries to help their economy... this ccuntrries economy was merely propped up on people borrowing against their properties and borrowed money. The Establishment want people to be brainwashed and keep you in the system ... why not get rid of your TV and concentrate on your life not the crap that is fed into your home and lives.This or any other Government could not run a sweet shop let a lone a country for the simple reason they have no business acumen and they would eat all the sweets..
The Bankers are all laughing so loud their sides must be hurting. There is no downside for them, its loan sharking to be exact when you are able to get money at 0.5% and offer it out at 19%. It really only the govt that can stop this sort of activity....however the govt are in cahoots with the bank..their sons & daughters and long term non executive directorships in the furture lie with the banks. (eg TONY BLAIR and son...JP Morgan).
How can u stop them?? Really in actuality its impossible....u could only minimise the impact by not using various services....but the banks would start to extract money indirectly from your pension funds....How?? because the fund managers are the same people....there is one small possiblity to make an impact and its movements like OCCUPY WALLSTREET that would have them on the run...but it would have to be long term with many people being proactive. The likelyhood of that occuring? Slender!! Can u hear those bankers!! Haahahahahahahahahahahahahahahah Hey ''Sir'' Goodwin pass me the champers...U think the Eton crowd ie Cam-moron(worth Est 37million wikipedia) and his cronies are going to crack down????? NO NEVER!!!
live on the Occupy Movement!!!!!!!
The core of the interest rate problem is twofold. Firstly, those few people with savings (mostly pensioners) are having to draw on the savings to assist their children, and others are having to draw on them to just buy food or pay gas bills. Banks and building societies want to encourage people to keep savings in the accounts, to maintain liquidity, and the only way to increase savers deposits is to increase interest rates for savers, which are now higher than 6 months ago as all the institutions are trying to poach those savers from elsewhere.
The second problem is more self fulfilling, in that as people struggle more and get further into debt, interest rates for some debts will be increased as those are the types of debt that will be defaulted on. You can blame the people who made it easier to go bankrupt and walk away from debts for that situation, after all, who will lend money if they have little chance of getting it back. The trick is to go without and be miserly, it's surprisingly easy once you've walked into work with a flask and home made sandwiches the first time. There is a lot of profit in food, make your own, or even grow your own if possible, and keep all the profits "in house", your house..........
You can't hit banks in the pocket. Until our government stops propping up our whole economy with the banks, they will always get away with murder. Stop using credit cards and they will find another way of extracting money whilst praying on the greed or necessity of the UK population. I agree, we only feed the problems in our own society. But there is a deeper moral requirement in society (and the media) and an overall change in direction that our country requires. We are better than this.
Overdraft charges are only half of the story. The Banks now pay only peanuts on Deposit Savings accounts. Where an elderly couple with £100K savings used to get about £80 a week for household expenses, many Banks are content to pay one-tenth of one percent interest, which just about buys a Sunday newspaper.
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these figures speak for themselves. The banks are nothing but dirty rotten thieves helped by the government to rob you more everyday. The banks get the money for practically nothing and when times are hard for the the normal person they jack up rates because they know they can.
