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Overdraft

Recent user polls on Moneyfacts.co.uk revealed that:

• 54% of consumers have been charged for going overdrawn on their bank account.
• 52% use an overdraft regularly. 
• 52% do not know the charges that are imposed for going overdrawn on their account.

Many of us use an overdraft facility on our current account. Often it is to keep essential covered such as bills and food. However, some of us use overdraft facilities to cover non-essential spending. This may cost us a great amount.

If you have arranged for an overdraft facility on your bank account, you will be charged what is called an authorised overdraft rate. You agree an amount for which you can go overdrawn and will be charged the authorised rate if you remain within this authorised limit.

If you have not arranged an overdraft facility or exceed your authorised limit you will be charged interest at the unauthorised overdraft rate. This rate will be much higher than the authorised rate. You may also be charged a fee for being overdrawn. Any fee levied will depend on whether the overdraft is authorised or unauthorised.

Moneyfacts research of overdrafts shows that some providers are charging EARs (Effective Annual Rates) on authorised overdrafts of over 20% and for unauthorised overdrafts over 30%. Best buy charts on moneyfacts.co.uk show that better deals are available with rates on authorised overdrafts as low as 0% (introductory) and unauthorised at 7.9%.

If you frequently overspend on your current account it is wise to arrange an overdraft with your bank of building society. The difference in rates charged if you do is significant and can save you hundreds of pounds.