Charges for an unauthorised overdraft could cost £156 – more than for a payday loan, according to new research by Which?.
As little as £100 could end up costing £180 at one high street bank, compared to the £24 the Financial Conduct Authority allows for, figures revealed.
According to research from Which?, the cost of borrowing £100 for 30 days was as much as 7.5 times higher than the maximum that can be charged on a payday loan due to unauthorised overdraft charges at some high street banks.
Bank overdraft charges apply to their monthly billing period, not the number of days the money is borrowed for, so someone £100 overdrawn could pay up to £180 in fees if they are in the red for 30 days and that went over two billing periods.
Natwest was the most expensive at £180, followed by Lloyds, Santander and TSB at £160.
Natwest said: “We encourage all our customers to contact us if they are going to enter unarranged overdraft. We offer alternatives such as putting an authorised overdraft in place, where the costs are considerably less. And our Act Now Alert Service warns customers of upcoming unarranged borrowing to allow time to transfer money to avoid fees.”
Lloyds said: “Unplanned overdrafts are designed for occasional spend rather than long-term borrowing. Customers can use our free mobile banking apps as well as voluntary text alerts, and all our overdraft products include an interest and fee-free buffer.”
Santander said: “We stress to customers that if they feel they may need to go into an unarranged position they contact us to discuss their situation. We have tools to help customers manage their money including text alerts.”
A review by the Competition Markets Authority found over half of overdraft users went into an unarranged overdraft at some point but attempts to curb charges will not tackle these extortionate fees.
Which? is calling on the Financial Conduct Authority to use its High-Cost Short-Term Credit Review to crack down on unarranged overdraft charges which banks currently set their own monthly maximum.
In case you need the safety net of an overdraft, make sure you set up an agreed facility – the charges are a lot less.
Andrew Hagger from Moneycomms.co.uk says: “Agreed overdrafts don’t have to cost the earth and it’s always worth having an agreed limit set up with your bank just in case of an emergency.