Overdrafts can give you a handy financial cushion, and it is possible to use them safely – but slipping into an unauthorised overdraft can leave you with fees you may not be able to afford and may not have expected.
Staying up to date with your bank account balance and planning for the month ahead can help avoid any unexpected surprises. The Money Advice Service – a free and impartial service, set up by government – has set out five practical tips to help you keep control of your bank account and avoid overcharges.
- Understand your overdraft: There are two types of overdrafts, authorised and unauthorised. Authorised overdrafts are arranged in advance by agreeing a borrowing limit with your bank, allowing you to spend money up to that limit through normal payment methods. Unauthorised overdrafts however, are unplanned and occur when you spend more money than you actually have in your bank account, without agreeing to it in advance. These extra charges can mount up quickly if not kept on top of.
- Setting a budget: Looking closely at your income and outgoings can help you identify your priorities and organise your payments. The Budget Planner from Money Advice Service is an easy way to help you see a detailed spending breakdown, and what’s left over after paying major bills – https://www.moneyadviceservice.org.uk/en/tools/budget-planner
- Check your balance regularly: Stay on top of your balance by checking it regularly. Setting up text alerts can be a helpful way to warn you when your account is approaching zero and help you plan short-term finances. Check your balance when you use a cash machine, or set up online banking if you haven’t already done so to keep track of your spending.
- Switch for a better deal: If you find yourself paying overdraft charges regularly, you may be better off with a basic bank account or an account with a lower overdraft fee. You may want to consider switching to a bank account that offers a fee free overdraft facility.
- Consider free debt advice: If you tend to end each month in the red, then you might find some free debt advice helpful. The Money Advice Service has a Debt Advice Locator Tool to help you find free, impartial advice in your area which will help you get your finances back on track.