How To Avoid High Overdraft Charges
Anyone who went to university will know what an overdraft is. And if you didn’t take one out then I am very impressed! No matter how great you may be with budgeting we all need a bit of backup every now and then. And an overdraft allows for that.
An overdraft kicks in when your account hits £0. And allows you to spend money that you don’t actually have. It’s a small loan from the bank which allows you to go ‘overdrawn’. But it can be an expensive way to get hold of cash as not many banks will offer interest-free overdrafts. And if they do it may only be for the first £20-50. Some banks charge interest rates up to 40% for any overdrawn money you use. Typically accounts charge one-time fees for going into your overdraft and interest on the balance. Although some banks may have changed their interest rates or allowed more leeway due to the pandemic.
While an overdraft is a nice thing to have for those emergencies where you have no other option, it shouldn’t be something you rely on. If you’re constantly going into your overdraft then you need to really dig into your finances.
How to avoid high overdraft charges
Change your bank
You may think that it’s a hassle to change your bank and just stick with your bank for a long time. But there’s no need to be afraid of switching your account. We recently changed our Halifax account to HSBC and got a £125 bonus for switching and they did all of the switches for us.
If you rely on your overdraft or want to have the buffer there are some banks that offer larger interest-free overdrafts, or lower interest rates. Browse the current offers and see if there is a bank that works out better for you. And then take advantage of their Current Account switching service so within one week they can switch all your payments, direct debits, etc.
Digital banks like Monzo and Starling generally offer lower interest rates than traditional banks.
Pay off your overdraft
This may seem like a really simple thing to do, but if you have savings, use the savings to pay off your overdraft and avoid you getting into it again. The interest you may be paying on your overdraft is costing you more than the interest you’re making on your savings. So in the long run you’ll save money by using this money to get out of your overdraft for good. Just make sure you’re not taking money from your everyday living costs to pay it off.
If you can’t afford to completely clear off your overdraft then budget to clear it off. Check your balance just before payday which is likely to be the most overdraft you’ll be. This is the amount you need to work towards paying off over the weeks and months.
If your income has been severely impacted by the pandemic and you’re struggling to get out of it see if your bank can help you. Arrange a meeting, or call them up and see if they can help you. Most banks work on a case-by-case basis and may be able to freeze any interest or give you an interest-free overdraft extension just until you get back onto your feet.
But if you’re struggling with debt and things seem unmanageable speak to a debt charity like StepChange. They will be able to help you look at your finances and come up with a repayment plan. They may even be able to negotiate with your bank and creditors. Don’t feel embarrassed or ashamed about asking for help.
Pin It
18 responses to “How To Avoid High Overdraft Charges”
Leave a Reply
All About Me
Rhian Westbury
Travels and Destinations
Nothing currently planned
It can be worth changing banks sometimes as that’s how you can get the best deals in some cases. It makes sense to pay off an over draft as quickly as possible where you can.
Yeah we changed our main bank and it’s so much better both the actual functionality and the switch bonus we got x
Thankfully I haven’t ever had an overdraft. I do have protection with my bank for it and my checking account would pull from my savings if needed. But it would be so easy to get into debt because of it.
That’s really cool that your account will pull from savings when needed. I only had one while I was at uni and that was enoug x
We have never ever had an overdraft but I do understand that sometimes life happens. You are giving some good tips here, I am sure somebody will find them useful.
I don’t have an overdraft anymore. I was always breaking into it, and struggling to pay it back, so just got rid of it
That’s a great thing to do to not be tempted x
Once you are in your overdraft, it’s so easy to keep leaning onto it! Thank you for sharing this.
Great tips here! It takes a lot of discipline. Thanks for sharing.
It does take so much discipline x
These are all really useful tips – I’ve actually been thinking about changing my banks I’ve seen a few offer good deals and money incentives if you do
Laura x
It sounds like it should be a painful process to change banks but it’s really not x
This is such helpful advice. So many of us get caught with these charges!
These are great tips for those who do have overdraft and would like to avoid the charges and wanting to get more help with their finances
Thanks x
Good information right here in regard to avoiding high overdraft charges!
Such great advice! Thank God, I don’t have any. Thanks for sharing this helpful info
These are some really sound and practical financial pointers. Like they say “Single money saved is single money earned”.