Brits 'permanently overdrawn'

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By Paul Davies
Know Your Money Editor

Millions of people in the UK are permanently overdrawn, but what they might not realise is that some simple steps could help to minimise the extra charges that they face for being so.

One in ten adults in Britain are reliant on their overdraft, figures from Moneysupermarket.com have revealed - that's around five million people.

Their research does however show some improvement on the situation compared to12 months ago, when in the midst of the recession 17 per cent of people were permanently overdrawn.

On the whole, the UK is looking in better financial shape with the figures showing that 38 per cent of Brits have fallen into the red in the past 12 months, in comparison to 52 per cent in the previous 12 months.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Whilst it is encouraging to see less and less people reliant on their overdrafts, we should be concerned that there are still such a large number of people permanently overdrawn.

"With rising inflation, it is going to be difficult for many to break the habit of living in the red and it may be that more people will fall back into this position as living costs increase."

What are the options if you are permanently overdrawn?

Current account holders could make big savings across the course of a year by switching to an account with more preferential charge.

Those who are overdrawn permanently for a whole year may wish to shop around for a better deal. One of the worst for money savvy bankers is Halifax's Reward current account due to its fixed daily rate of £1, which makes it one of the most expensive options. Borrowers in this scenario would find that their yearly charges totalled £300.

Alliance & Leicester is a far better option for those looking to minimise their financial damage as it provides one of the cheapest, costing £60 a year. Second cheapest is Santander with annual charges of £64.80.

Other banks charges will vary as Barclays charges £95.22, Nationwide BS and Lloyds TSB £93.60, NatWest £97.20 and HSBC £100.80.

Overdrawn for several days a month?

Savvy consumers may find it wise to take consideration of their own financial circumstances before jumping ship. No one bank appears to be best for every overdraft situation and for those who are overdrawn by £500 for just five days a month the Halifax Reward current account could be ideal.

The overdraft charge of £1 per day for debit balances under £2,500 can be negated by the £5 monthly payment made by the bank to account holders paying in a minimum of £1,000 a month.

In this case, Alliance & Leicester's Premier Direct account - the best value for those permanently overdrawn - is one of the most expensive, costing £2.50 a month or £30 a year.

The same customer would face charges of £10.80 per year using the Santander Preferred Overdraft account, while those with a Barclays bank account would be charged £15.87.

The other charges across the banks are Nationwide BS FlexAccount and Lloyds TSB Classic account Plus £15.60, NatWest Current Plus £16.20 and HSBC bank account £16.80.

Kevin Mountford said: "Consumers should always consider the ways in which they use their current account and make sure they have the right product to match. For example if you dip into your overdraft on a regular basis, your main concern should be minimising the costs of going overdrawn; but if you're never overdrawn you might want to look for other benefits, such as charges for use abroad or in credit interest rates."

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