Frankfurt With the turnaround in interest rates, overdraft facilities are also becoming significantly more expensive. At the end of last year, overdraft interest shot up at record speed on a monthly basis. According to the analysis company Barkow Consulting, the overdraft interest rose by 0.42 percentage points volume-weighted to an average of 8.16 percent.
This is the highest increase since the time series began almost 20 years ago, Barkow said with reference to Bundesbank data. Compared to April 2022, the financing costs for using the private overdraft facility have increased by almost 20 percent.
In November 2021, the corresponding interest rate was 6.9 percent. Since 2008 it had been falling steadily for the most part. Overdraft interest accrues when customers overdraw their current account but remain within the agreed overdraft limit. The overdraft facility is often used to bridge minor financial bottlenecks. It is quite possible that in view of the high inflation, more people than before are currently slipping into the overdraft facility – and paying high interest rates for it.
The European Central Bank has raised interest rates several times since July. For example, interest rates for call money and construction loans have also risen. When it comes to overdraft interest, the difference between different banks is particularly large.
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While the Ökobank GLS Bank is leaving the overdraft facility at zero for the time being, according to data from the consumer portal Biallo, many financial institutions have quickly raised interest rates. The VR-Bank Landsberg-Ammersee increased the overdraft interest on the VR-Giro Direkt account to 15.11 percent in December. At some other regional institutes, the interest rate was a good 13 percent and more.
“The speed of upward price adjustments is breathtaking. We can hardly keep up with the research for our database,” says Horst Biallo, founder and publisher of Biallo.de. In the most recent Biallo overview, the average interest rate is already almost 10.5 percent. In November it was already more than ten percent. The difference to the Barkow data is probably due to the fact that the interest rates there were calculated on a volume-weighted basis.
Overdraft interest: Expensive banks are becoming even more expensive
Biallo estimates that more than 90 percent of financial institutions have raised prices. “This will also be due to the fact that customers do not have to agree to the overdraft facility compared to the current account prices,” he says. Since a court ruling in April 2021, banks and savings banks have needed the explicit consent of customers to increase fees, which means a lot of effort.
In general, according to Biallo, expensive banks will continue to follow the same course and become a little more expensive. Cheap providers such as the online bank ING would also raise interest rates, but at a lower level. ING announced this week that it would increase the overdraft rate by two percentage points to 8.99 percent by mid-February.
The cooperative GLS Bank is also likely to see an increase soon. The interest rate is linked to the average Euribor with a term of three months. According to the bank, adjustments could be made after June 30. Euribor is the interest rate at which banks lend money to each other.
As an argument for comparatively high overdraft interest, banks often cite: The overdraft facility is an unsecured loan with which there is no repayment obligation as with a classic loan. For the higher risk, the bank charges a higher interest rate.
A number of financial institutions apply an even higher interest rate for tolerated overdrafts, which go beyond the overdraft facility. This is usually called “overdraft interest”. A few years ago, a legal cap on overdraft interest was under discussion, but this never happened. However, since 2016 banks have had to offer customers an alternative in the event of permanent overdrafts.
If you are stuck in the overdraft facility for a long time, you should better restructure your debt and take out an installment loan. The interest is usually lower than the overdraft interest.
More: Banks and savings banks are closing thousands of current accounts