Switch to a challenger bank and pay 50 times less for your overdraft
The average overdraft user is £285 in the red each month and uses the credit facility for nine days, racking up charges of £56.52 every year.
Customers of the NatWest Reward current account pay the most – £87.36 annually in fees and interest.
By moving to the cheapest provider – First Direct, which charges no interest on overdrafts of up to £250 and no fees – they could pay as little as £1.56 a year on the average overdraft. This is more than 50 times less.
The research from price comparison site uSwitch.com revealed that 12 million current account holders with the biggest high street banks could be paying £640m too much on their overdrafts.
The most common reason consumers use their overdraft is to cover their everyday expenses, with 29% relying on it to buy food. For a quarter, they dip into the red to pay household bills while 15% said they use the credit for emergency expenses.
Despite the difference in fees and charges from the major banks and the challengers, six in 10 people aren’t aware they can switch current account provider while being overdrawn, potentially reducing how much they pay to service the debt.
The table below compares the average annual cost of high street bank overdraft rates:
Tashema Jackson, money expert at uSwitch.com, said: “Banks that offer incentives on positive balances often make the headlines, but for the 12 million who rely on overdrafts to make ends meet every month, getting the cheapest deal on borrowing is what will really save you the most money.
“If you know you are going to be a few hundred pounds overdrawn each month, it pays to do your research. Some banks offer interest free overdrafts, while others charge no fees for using one. Even when you have to pay, some will cost you significantly less than others.”
“There are options around to help cover household spending while you wait for payday, or provide you with a safety net in case of emergency, but it is always important to check the terms and conditions of any credit agreement you sign up to. Knowing what the penalties are should you miss a repayment and understanding the impact on your credit rating are essential before taking out any form of borrowing,” she added.