Paying less for your overdrafts
Are you paying over the top fees for going overdrawn? Millions of us live in our overdrafts but some people could save as much as £240 a year by switching current accounts.
New research from moneysupermarket.com shows that five million people – that’s 10% of the country’s adults – are permanently overdrawn.
This is an improvement from last year when 17% of people said they lived in their overdrafts.
But there’s a huge difference in how much people are paying for their overdrafts, whether they dip into the red now and again, or are simply never in credit.
So if you’re often overdrawn, what’s the best account for you?
If you slip into overdrafts for no more than five days a month should take a look at the Halifax Reward Current Account.
Although it charges £1 a day for authorised overdrafts up to £2,500, it also pays account holders £5 a month – so on balance, you’d pay nothing. To earn that £5 reward, you’ll need to credit the account with a minimum of £1,000 a month.
Be careful, though. If you’re permanently overdrawn, this account is one of the most expensive.
If you’re one of the five million living in the red, there are some decent accounts available. One good example is the Alliance & Leicester (A&L) Premier Direct Current Account, which charges 50p a day.
That’s capped at £5 a month, so your overdraft charges would always be under control.
If you use your overdraft more than others, you may decide to go for the A&L Premier Direct Account and pay a maximum of £5 a month – the cap means it won’t cost you any more in the months where you do spend longer in the red.
Still, if you are not overdrawn more than half the time, it’s probably cheaper to choose an account that charges a low equivalent annual rate (EAR). Santander’s Preferred Overdraft Rate Account charges 12.90% EAR.
That means if you went overdrawn by £500 for 15 days in any one month, you’d pay £2.70 – whereas you’d have forked out £5 with A&L.
Another option is the Barclays Bank Account, charging 19.30% EAR. Over 15 days, a £500 overdraft would cost you £3.97 – again, cheaper than the A&L account.