Interest-free overdraft limits on the rise
Nearly 40% of all current accounts on the market offer an interest-free overdraft limit, according to research from MoneyExpert.com.
However, fewer than half that number will automatically set up an overdraft for customers straying into the red.
MoneyExpert.com says the number of accounts with the 0% buffer zone has increased from 32 last October to 63 now with an average limit of £428, up from £368 last year.
But MoneyExpert.com says only 44% of accounts with interest-free overdraft limits will automatically set up an overdraft facility for customers who stray into the red. This means many customers who want an interest-free limit must act themselves.
And with some interest-free overdraft limits going as high as £3,500, MoneyExpert.com is urging customers to check the terms of their bank account as they could avoid borrowing on a credit card or personal loan if their overdraft can tide them over high-spending periods.
The average interest rate for customers who go into the red without permission across the 159 current accounts on the market is a punitive 21%. At that rate if you were to spend £500 on an unauthorised overdraft you could incur £105 annual interest.
Sean Gardner, chief executive of MoneyExpert.com, said: “Banks have come in for criticism for their overdraft charges and low credit interest payments. But this is an example of a genuinely useful feature and it’s up to customers to ensure they make the most of it.
“A £500 interest-free overdraft can go a long way and for many that should tide them over into the New Year. Of course, you can get even more 0% credit by opting for a credit card, but a free overdraft would seem a sensible way to keep your borrowing under control. The responsibility is ultimately with the customer. If you think you should be getting more from your current account, it’s easy to switch banks these days, so vote with your feet.”