Deep in the red
Over 6 million regular borrowers don’t know what interest rate their bank is charging them. Christina Jordan reports
Over a third (35%) of all adults with a bank account in Britain are relying on their overdraft, according to a report by uSwitch.com.
It shows that current accounts are the most widely held financial product, with 85% of all adults holding one, equal to up to 40 million customers. Around 28 million of these customers have an overdraft facility on their account, with 14 million making regular use of it.
However, 1 in 4 current account-holders with an overdraft are permanently overdrawn, and 2 million people start the month in the red even after they have been paid.
During the last 6 years, the level of borrowing on overdrafts has grown by almost 125%.
Commenting on the findings, Nick White, head of personal finance at uSwitch.com, said: “Overdrafts are now an everyday part of life, but we are concerned about the increasing reliance that people are placing on them. They are no longer seen as a short-term borrowing facility – and for the 3.5 million people in this country who are permanently overdrawn, they are an absolute necessity. People are now relying on their overdraft to buy their shopping (39%), pay their mortgage or rent (14%) and to pay their bills (39%). However, with no structured repayment scheme on an overdraft, we are worried that many people will struggle to pay the debt off.”
The report also found that 14.4 million people – or 36% of the adult banking population – have been overdrawn without authorisation at some time, paying an average of £70 each time in charges alone. Even more worryingly, 2 million people exceed their authorised overdraft limit, or go overdrawn without authorisation, at least 4 times a year, wasting over £560 million each year.