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Overdraft rates 'higher than before the credit crunch'

By Joel Stanier

8 August2021

The average interest rate on an authorised overdraft is higher than before the credit crunch, according to research by Moneyfacts.

This is despite the base rate falling to an all-time low of 0.5% during that time. A low base rate would normally mean that interest rates on borrowing also fall, but the difficult economic situation has meant that in some cases lenders have actually increased rates.

Bank account holders today pay 15.41% APR (interest charged over the course of a year) on average, compared with 13.11% in August 2007, just before the financial crisis hit.

However, unauthorised overdrafts have seen their interest rates fall - from 25.92% in August 2007 to 19.45% today - perhaps reflecting pressure towards bank account providers to treat financially vulnerable customers more fairly.

At the same time, credit card rates have increased from 16.5% to 18.8% - likely to be a result of more strict lending conditions. But mortgages, which are now generally only available to people in a comfortable financial situation, have seen interest rates fall.

Meanwhile, savings rates have fallen significantly. The average interest rate across all savings accounts was 4.12% in August 2007, but today it is just 1.09%. ISAs continue to offer some of the best returns - 2.41% on average - but in 2007 this was 5.45%.

"The credit crunch may have officially started five years ago, but its pain is still as raw today as it ever was.

"Savers continue to be hurt by the enormous drop in savings rates and they have little hope of beating inflation, let alone supplementing incomes or growing nest eggs. Increased talk of the Bank of England further reducing its base rate will only add to the air of despair.

"Personal borrowing and credit cards have actually become more expensive despite the fall in base rate. This is an extension of a lack of appetite for risk that kicked in at the start of the banking crisis when it became harder for anyone to get a credit card and personal loans became driven by credit rating rather than a generally offered rate."

Tags: overdraft, banking, interest rates, economy

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