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Why have overdraft rates increased?

Over last 18 months there has been a massive increase in the rates charged on overdrafts by an array of UK banks. Many banks are now charging in the high teens and some have broken the 20% barrier which has resulted in a massive increase in the cost for UK consumers. So why have UK banks being so aggressive on the overdraft front?

If you were to talk to any one of the major UK banks they would all highlight the fact that in their eyes there has been an increase in the perceived risk of lending to any consumer in the UK. As a consequence, in order to rebalance the risk reward ratio we have seen the likes of Barclays Bank increase overdraft rates from 8.4% to 18.3% over the last 18 months. However, Barclays Bank is not alone in these massive increases with the likes of NatWest, Nationwide and other well-known banking institutions joining the party.

Many people are sceptical of the "increasing risk" as a reason behind the massive increase in overdraft rates with a number of people suggesting that overdrafts are "easy prey" to increase bank income. Whatever the reason, however long this will go on for, there is no doubt that UK consumers are being hit in the pocket.

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