£500 overdrawn? That’s £360 please…

You might not see your overdraft as borrowing money in the same way you might see a loan or credit card. But don’t underestimate the cost.

£500 overdrawn? That’s £360 please…

Dip into the red too often and you could find charges mounting up to hundreds of pounds a year.

It isn’t always easy to know exactly how much you’re paying for your overdraft, so MoneySuperMarket has done the hard work for you. We’ve worked out what you’ll pay if you go overdrawn by £500 after any introductory offers have ended – and we’ve got some shocking results.

How charges add up

Even if you’ve agreed your overdraft in advance, you could be looking at fees of as much as £30 a month.

Halifax is among the worst banks to head towards if you are regularly in the red. Its Reward Current Account charges £1 per day for using its overdraft up to £1,999.99. Over 30 days this would result in charges of £30 – or a massive £360 in a year.

Halifax isn’t alone either. Santander’s Everyday Current Account also charges £1 for each day you are overdrawn, so again you’d pay £360 if you sat in the red for a year.

Barclays is another no-go. Its charges are tiered.  While the first £15 is free, if you go £1,000 overdrawn, you’ll pay 75p a day, rising to £1.50 a day if you’re in the red between £1,000 and £2,000.  And a massive £2 a day if you’re overdrawn by more than £2,000.

If you’re £500 in the red for a year, you’ll therefore face charges of £22.50 a month, or £270 a year.

Worst for unauthorised overdrafts

If you go overdrawn WITHOUT agreeing it with your bank things get more expensive still.

Santander’s Everyday Current Account charges a whopping flat rate fee of £6 per day for unauthorised overdrafts – amounting to £180 a MONTH!

Kevin Mountford, head of banking at MoneySuperMarket, said:

 “Many people rely on an overdraft to help bridge the gap between pay days and covering any unexpected costs, and this can be a great way to borrow money, especially if you take advantage of an interest-free overdraft period. However, if you do not manage to pay back the debt within the interest-free period, or borrow more than the authorised amount, that’s when charges can rocket.”

Top 5 accounts for overdrafts

But, as always, it’s about choosing wisely. If you find yourself often in the red, there are some current account providers that will suit you better than others. Here’s our suggested 5…

  1. First Direct 1st Account
    First Direct’s 1st account offers the first £250 of overdraft borrowing interest-free – great if you tend dip just below the line as payday approaches. And if you go over the £250, the 15.9% charged by First Direct could be worse. You’ll also get a £125 thank you if you switch your main bank account via MoneySuperMarket before December 5.

    Will suit you if…
    you are largely disciplined but sometimes need a buffer – and you can service the account with at least £1,000 a month.
  2. Nationwide’s FlexDirect 
    The FlexDirect account from Nationwide offers time as your buffer rather than money as you as you’ll get the first 12 months of any arranged overdraft interest-free. However, you’ll have to switch your main bank account to Nationwide to qualify.

    Will suit you if… you’re in the market for a new current account, have a switchable existing overdraft which you can realistically pay off in 12 months. (After this time, even arranged borrowing will ring in at a hefty 50p a day.)
  3. The Co-Operative Bank Current Account Plus
    You can go overdrawn up to £200 at any time with the Co-op’s Current Account Plus without being charged. Keep within this limit though else you’ll face interest of 18.9% on the total overdrawn balance – that’s like borrowing on a credit card. If you need to arrange an overdraft of more than £200, you’ll have to pay a £20 set-up fee. There is £100 cashback on offer though, if you switch your main account.

    Will suit you if…
    you only dip into the red up to £200 and can service the account with at least £800 a month.
  4. Clydesdale Current Account Direct
    This account from Clydesdale Bank offers a really competitive on-going overdraft rate of 9.9%. For context, the TSB Classic Plus account charges almost 20% on all borrowing over a tenner.

    Will suit you if… you realistically know you are going to remain in your overdraft in the long-term, beyond £250.
  5. Marks and Spencer Current Account
    This is not a bad deal when it comes to borrowing from your current account as all successful applicants to M&S Bank will be guaranteed an overdraft of £500, the first £100 of which is interest-free. Any arranged borrowing is charged at a relatively competitive 15.9%. There’s also £100 for grabs if you switch your main account and reward points on offer when you use your debit card.

    Will suit you if…
    you like the security of a guaranteed overdraft – but are unlikely to use it beyond the first £100.

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

Compare current accounts
   

 

Did you enjoy that? Why not share this article

SAVE MONEY NOW

Other articles you might like

Popular guides