NatWest raises overdraft rates for second time in three months

NatWest Bank is to raise the cost of millions of customers' overdrafts for the second time in three months. The average overdraft interest rate will rise to 17.44 per cent on 2 January, up from 16.11 per cent today and 14.96 per cent prior to 1 September.

NatWest is the latest in a series of banks to raise borrowing rates or charges amid concerns about rising bad debt and the cost of regulation, but its increase is significantly higher than those imposed recently by leading rivals. The average overdraft customer will from January pay 2.48 percentage points more compared to an equivalent figure of 1.05 percentage points more at Lloyds TSB, which announced its own increases this week.

Like other banks, NatWest charges different overdraft interest rates across its range of current accounts and the cost also varies according to the size of overdraft, so some customers will be hit harder than others. On NatWest's most basic current account, the rate is to rise to 19.99 per cent for those less than £1,000 in the red, and to 19.41 per cent for those owing from £1,000 to £5,000.

Nick White, director of financial services at the price comparison service uSwitch, said it had calculated that the bank would make more than £28m in additional revenues from the increases during 2007. "We thought Lloyds had delivered a nasty blow to customers but NatWest has really pushed the boat out," he said.

However, a NatWest spokes-man rejected uSwitch's figures and said the bank's current accounts remained competitive. Rates had been held for almost three years despite a net base rate rise of 1.25 per cent, he said.

"To put this into context, more than 80 per cent of our standard current account customers do not go overdrawn," he said. "For those that do, the impact is in most cases pretty small- NatWest customers with a permanent £500 overdraft would pay less than 50p more per month."