Nationwide cuts overdraft rate

Britain's biggest building society, Nationwide, today announced that it will be cutting its authorised overdraft interest rate to a market-leading low of 6.75%.

The new rate, which comes into effect on July 1 and is available on the bank's standard current account, the FlexAccount, is less than half that offered by most of the high street banks. Barclays, HSBC, Lloyds TSB and NatWest all charge interest of between 14.8% and 17.8% on their authorised overdrafts.

The building society's announcement coincides with a report today from the Consumers' Association, which criticises the 'big four' banks for paying poor rates of interest to customers in credit while imposing high rates of interest on overdrawn accounts. The CA wants to encourage people to switch to a better deal.

Nationwide's unauthorised overdraft rate will remain at 19.9%. This still compares favourably with most of the other banks on high street: NatWest, for example, charges 33.8% for those exceeding their authorised overdraft limit.

Elsewhere, however, the building society increased its charges. The cost of card misuse - where a customer makes a guaranteed payment that causes his or her overdraft limit to exceed its authorised limit - was raised from ?17.50 to ?20, and the charge for unpaid items due to insufficient funds has gone up from ?25 to ?27.50.

Nationwide is not the first institution to cut its borrowing rates in the wake of the launch of internet banks such as Smile, which offers an authorised overdraft rate of 9.9%. Last year HSBC reduced its overdraft rate to 14.8% and scrapped its unauthorised rate altogether, applying the same rate of 14.8% to anyone going over their limit.

The Consumer's Association welcomed today's news. "Nationwide are already competitive price-wise but this makes them the cheapest to borrow from. If you are with one of the big high-street banks and are not happy, Nationwide would definitely be one of the institutions we would recommend considering a switch to," said Rebecca Fearnley, senior researcher at the Consumers' Association's Which? magazine.

For those customers in credit, Nationwide rates of interest are not the highest available, but still compare favourably with the big four high-street banks. It pays less than 1% to those with balances of up to ?1,000 and 2.25% on balances above this.