Banking, loans and cards

Don’t get stung by huge overdraft charges

Shopping around for products such as credit cards and insurance is second-nature for many of us, but bank customers who fail to apply the same principle to their current-account overdrafts risk losing out by hundreds of pounds a year.
It is not good practice to use your overdraft too often, and if you do then it could be a sign of wider financial problems.
But if you are someone who does go into the red from time to time, make sure you are not paying over the odds for the privilege.
Analysis by found that authorised overdraft facilities – in other words, borrowing agreed in advance – offered by the main banks and building societies could result in customers being hit by charges of up to £360 a year for a £500 facility.
For example, Halifax’s Reward Current Account charges £1 a day (or £30 a month) for an authorised overdraft of £500. The same thing with the 1st Account from First Direct would result in an interest charge of just £3.27 over the month.
The research also found huge differences in charges for unauthorised overdrafts (overdrafts not agreed in advance). Moneysupermarket said Nationwide’s Flexaccount charged interest of £7.53 a month (or 25p a day) for a £500, but Santander’s Everyday Current Account charged £6 a day (£180 a month).
“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,” said Moneysupermarket’s Kevin Mountford.
“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.”