COMMENT
Avoiding Overdraft Fees This Christmas

By Jane Mack (TMFJane)
December 16, 2004

Are you among the 30% of the population who expects to go overdrawn this Christmas? And if so, what can you do about it?

Banks are currently raking in more than £200 million in fees and charges on standard overdrafts each year while unauthorised overdrafts are proving a positive gold mine. According to Which?, UK banks have charged their customers a whopping £3 billion for unauthorised overdrafts over the past year and most of that is being financed by around 20% of people who regularly either exceed their agreed overdraft limit or go into the red without having arranged an overdraft facility.

Even if you're authorised to go overdrawn, do you know how much you're being charged for doing so? Banks have an unfortunate habit of only telling you the monthly percentage rate rather than the annual rate just so it doesn't seem so expensive.

For example, if you have a Lloyds Classic account you'll be paying 1.4% on your overdraft each month but that translates into an effective annual rate of 18.2%. NatWest isn't much better with annual charges of 17.69% on its Current Plus account while Barclays charges 15.60% for its standard bank account. And the cost of going overdrawn without permission can hit the 30% range! Considering the Bank of England base rate currently stands at 4.75%, it's not surprising one of the things that bank customers get grumpy about is charges!

If you think you're going to go overdrawn over the festive period then get on to your bank immediately to make sure you have an overdraft facility to cover it - avoid going overdrawn without permission at all costs.

Then, consider switching to a bank offering a better deal, particularly if you already are overdrawn. For example, the Alliance & Leicester offers a one-year interest-free overdraft to new customers while First Direct customers can go into the red by up to £500 before any overdraft fees kick in. See our banking centre for more on these and other deals.

If you're the sort who regularly needs to use an overdraft facility it might be time to switch to a bank offering better rates. And even if you don't want to switch, make sure that you at least arrange an overdraft in advance so you can avoid any nasty surprises in the New Year.

Switch Banks and find out How To Kill Your Overdraft.

The author owns shares in Lloyds TSB.