Brits forced to use overdraft
Four and a half million Brits are permanently overdrawn and over 17 million have gone into the red over the last twelve months according to research from MoneySupermarket.com.
The research found over one third of Brits (35 per cent) have used their overdraft in the last twelve months, with those aged 18-34, (49 per cent) the most common users of an overdraft facility. Over a third surveyed claimed they would cut back on their spending or dip into their savings as a first step to manage their finances, before going into the red.
Of those who have gone overdrawn in the last twelve months, over a quarter (27 per cent) ended up in their overdraft just 15 days after they have been paid. Seven per cent hit the red zone within five days of being paid.
Kevin Mountford, head of banking at MoneySupermarket.com said: "Times are hard for UK consumers with many people either out of work or receiving no pay increase despite the high cost of living. It's therefore no surprise to see many Brits living in their overdrafts or being forced to dip into it throughout the year to help cover these costs.
"However, it's encouraging to see people taking a sensible approach to tackle their overdraft by looking at ways to cut back on spending or using their savings. When used wisely, an authorised overdraft facility still has an important part to play in the nation's finances as it can offer an invaluable buffer for unexpected costs. It's essential if you use an overdraft to ensure you have always agreed this with your bank and don't be tempted to stray over your limit as the cost of unauthorised borrowing can rocket."
Analysis by MoneySupermarket shows someone who permanently uses their £500 overdraft could be paying almost £200 a year more than they need to by using the wrong product. Those who are always in the red should consider moving to the Nationwide FlexAccount which charges a rate of 18.90 per cent on authorised overdrafts, costing £93.60 per year. Those who only go overdrawn from time to time should look at the Reward Current Account from Halifax, which charges £1 per day for overdraft balances under £2,500. For someone who goes overdrawn for just five days per month, the overdraft charges would be £5, which is the same as the monthly reward credit on the account.
Kevin Mountford continued: "It's really important consumers take the time to look at their finances and work out which products best suit their circumstances. Those who find they dip into their overdraft regularly will need a different account to those that occasionally fall into the red. By switching current accounts, people can end up saving themselves hundreds of pounds in unnecessary charges every year. For some, a packaged current account may be worthwhile as preferential overdraft facilities and additional benefits may be more cost effective.
"For people trapped in their overdraft, it's essential they try to find ways to cut back where possible and bring themselves back into credit. Switching a current account is still an option as many providers will match existing facilities based on personal circumstances. Alternatively, consolidating an overdraft onto a low cost personal loan may be a cheaper option if you are permanently overdrawn. Consumers who do this need to be disciplined and ensure they don't dip into their overdraft facility again."