Half of customers who pay bank charges end up in unauthorised overdraft

Of the more than one in four people (28.6%) who paid bank charges last year, over half (55.9%) ended up in an unauthorised overdraft as a result, according to thinkmoney. That’s equivalent to more than 8 million people whose finances are further in the red because of penalties they received from their financial services provider.

Slipping into an unauthorised overdraft was most common among young people. Nearly two-thirds (64.1%) of 18 to 24-year-olds who paid a bank charge last year were pushed into an unauthorised overdraft by the penalties. However, the situation did not improve much among the older generations, as over half of customers aged between 25 and 54 years old who had paid penalties to their bank had ended up in an informal overdraft because of this.

Missed direct debits, unpaid standing orders and bounced cheques were among the issues customers were charged by their bank for last year, which suggests that many were already struggling with tight finances before they got the penalty. And as many high street banks charge customers a fee for each day they remain in an unauthorised overdraft, this could be making a bad situation even worse.

Of those who received charges, the average number of penalties each customer paid was three, and the average sum they were charged was between £31 and £40. However, nearly one in five (17.7%) of these respondents revealed they had been charged over £100 in total, and the equivalent of 258,000 customers paid more than £500 in charges.

Spokesman for thinkmoney Ian Williams says: “Not having enough money to pay a direct debit or a standing order is enough of a worry, but when customers are charged by their bank or building society as well it can put an even greater strain on the household finances.

“Being pushed into an unauthorised overdraft is also a concern. Because many financial service providers charge customers for each day they are in an informal overdraft, their finances could be pushed even further into the red.

“At thinkmoney, there are never any late fees or penalty charges. In return for a monthly fee, our account managers oversee customers’ accounts to ensure that there is money available for any direct debits and standing orders that go out each month. This means our customers know exactly what they have available to spend, and have the peace of mind that they will never miss an important payment, let alone be penalised for so.”