Most people in the UK have their own bank current account and the majority of these automatically have an overdraft facility incorporated within it.

In many cases this facility is never used, but a large number of people use their overdraft on a regular basis. In some cases, they just dip into it at the end of the month, prior to being paid, but other individuals may have large overdraft facilities which they use to cover their day to day living expenses and constantly remain in the red with their accounts.

A recent report has revealed that several major high street banks have increased the interest rate which they are charging on overdrafts, without letting customers know about the increases and are achieving this through the small print of the terms and conditions of the overdraft agreements. In some cases, a customer with an overdraft could be charged up to 20 per cent for overdraft interest. It is thought that this is one way the banks are finding to recoup the losses they have made recently in other parts of their business.

For those individuals who are constantly using their overdraft facility, it may well be prudent to check on exactly what interest rate they are paying and then consider alternatives such as taking out a personal loan to repay the debt. Even with an unsecured loan, it could be possible, in some cases, to reduce the interest rate payable by half. In many cases it may even be possible to obtain a cheap loan, compared to the overdraft rate, with the same bank, although how many will actually offer this option to their customers unless they ask for it?

The Liberal Democrats have raised the issue of these charges with the Office of Fair Trading, their spokesman said “This may not be technically illegal, but it is the sharpest of sharp practices. Banks must not be allowed to screw their customers to make up for losses made elsewhere.”

Defending the charges, a spokesman for the British Bankers Association said “Banks offer a range of overdraft and lending products to suit customers’ needs and are constantly reviewing what they offer in the light of demand.”