11th November 2014
Customers are being urged to shop around for the best overdraft deals as opting for the wrong account could cost up to £180 per month.
Using unathorised overdrafts, where a borrowing facility has not been set up in advance of going into the red, can cost customers up to £180 per month, a study by MoneySuperMarket.com has found.
In many cases, customers can save money by choosing a suitable interest-free credit card instead.
Analysis of the authorised overdraft facilities offered by the main banks and building societies found that those who go into the red by £500 could be hit with charges of up to £360 a year after any introductory offers.
Halifax’s Reward Current Account for example, charges £1 per day for using its overdraft up to £1,999.99. Over 30 days this would accrue charges of £30, which amounts to £360 over the course of a year.
In comparison, straying into one’s overdraft by the same amount on First Direct’s 1st Account would attract interest of just £3.27 in a month or £39.24 annually – almost a tenth of the cost of Halifax’s overdraft and a saving of £321.
There is also a substantial variation in the cost of unauthorised borrowing.
Nationwide Building Society charges £7.53 in interest if you go overdrawn by £500 for a month, on its FlexAccount, the equivalent of 25p per day.
However, Santander’s Everyday Current Account charges 24 times more than this, with a flat fee of £6 per day – amounting to £180 a month if you draw upon its unauthorised overdraft facility.
Kevin Mountford, head of banking MoneySuperMarket.com, said: “Many people rely on an overdraft to help bridge the gap between pay days and covering any unexpected costs, and this can be a great way to borrow money, especially if you take advantage of an interest-free overdraft period.
“However, if you do not manage to pay back the debt within the interest-free period, or borrow more than the authorised amount, then charges can rocket.”
In some circumstances, borrowing on a credit card can be a far cheaper than going overdrawn. For example, MBNAs Platinum Credit Card is one of the few that allows a money transfer, so that customers are able to transfer a balance from the credit card into their bank as cash to clear their overdraft. The card offers 0% interest on money transfers for 24 months, and has a reduced money transfer fee of 2.69% if purchased through MoneySuperMarket.