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Overdraft Rates Up Again...

With bank charges in the spotlight again following the recent BBC Money Programme investigation, and the numerous campaigns to reclaim charges pending the outcome for the OFTs research due in the first quarter of 2007, Moneyfacts.co.uk takes a look at the recent changes some of the major high street bank have introduced to their overdraft charging structures in the last few months.

The last two base rate rises have been followed by a raft of banks increasing overdraft rates. This is not something that we have witnessed previously; usually lenders review overdraft rates on a less frequent basis. It seems that a number of the main providers are raising their overdraft rates each time the base rate increases, even though their accounts are not directly linked to the Bank of England Base Rate.

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While fees are an extremely hot topic, increases to overdraft rates may go unnoticed by many consumers. However, with many people reliant on an overdraft facility for their day-to-day living, such increases, however small, could prove to be a big revenue earner for the banks.

Any customer who has an overdraft with these providers should take the opportunity to review their banking arrangements, as some of the overdraft increases we have witnessed are quite substantial, especially as some of these deals were already less competitive when compared to some in the market.

Not only have rates risen, but providers are also tweaking their overdraft terms and conditions.  Lloyds TSB has removed its £10 fee free buffer and more recently HSBC has announced that it is removing its paid item fee structure. It will now charge an overdraft arrangement fee.

So are current account providers pre-empting the OFT's anticipated move to reduce default charges, looking at alternative methods to recoup this possible loss in revenue? And how far will they need to go? Will it mean further restructuring of overdraft terms and conditions or will the current campaigns to reclaim unpaid fees lead to the demise of free banking?

It is now easier than ever to switch current accounts with the majority of banks offering a switcher service. Customers who regularly use their overdraft should spend half an hour or so shopping around for a better deal, it could certainly prove to be time well spent. Check out the best overdraft deals currently on offer.

But remember, in most cases your new bank will ask to see the last few months statement from your existing provider, which will need to be clear of charges. So it is always wise to speak with your bank and ask for its help in managing your finances. Then your choice of new providers, if you still wish to switch, will be vastly widened.