Unauthorised overdrafts could cost up to £690 a year


Financial Guidance

The average cost of an authorised overdraft is now at an all-time high of £6.88 a month, according to new figures. This means consumers could spend an average of £82.56 in a year on their authorised overdrafts, up from an average of just £26.40 a year back in 2009.

However, that’s just customers with agreed overdrafts – those with unauthorised overdrafts could end up paying substantially more. The total of average monthly unauthorised overdraft fees is £57.50 – that equates to £690 a year.

Planned borrowing

An authorised overdraft is when you set up a prior agreement with your bank, building society or account provider that you’ll be able to spend more money than you have in your account. There can be a monthly fee for this but consumers can sometimes have to pay extra fees when they’re actually overdrawn as well.

Borrowers can also be charged interest on their overdrawn balance and it seems that the rate of this is increasing as well. Back in 2009, the average interest rate on an unauthorised overdraft was 12.4 per cent according to the stats from Moneyfacts.co.uk. Now, consumers could expect to pay an average of 13.89 per cent on what they owe, showing that the cost of borrowing through an agreed overdraft is increasing.

When it’s unplanned

If consumers don’t have an overdraft agreed with their bank but end up going overdrawn anyway – possibly due to an unexpected bill or to tide them over until payday – this is what’s known as an unauthorised overdraft. Using an unauthorised overdraft is often a lot more expensive than an authorised overdraft because fees for these types of overdrafts are usually higher.

Consumers will generally have to pay a fee for going into their unauthorised overdraft and then extra charges for every day that they’re overdrawn. They’ll also pay an average of 12.85 per cent interest on their overdrawn balance – meaning it can work out quite expensive for those who are in an unauthorised overdraft for an extended period.

It can be all too easy to slip into an overdraft if you’re on a very tight budget where you can only just afford all of your bills and financial commitments but you have no disposable income to give you ‘breathing space’. This means that just one unexpected bill – the car breaking down or the fridge stopping working – could push you over budget and into your unauthorised overdraft just so you can afford to make ends meet.

One way you could stop yourself going into an unauthorised overdraft is with the thinkmoney Personal Account. The account will set aside any money needed for any upcoming bills that you’ve told us about. This means that when you have an income paid in, the money needed for your bills will be ring-fenced so you won’t be able to accidentally spend it. If you have an unexpected bill, you can get in touch with one of our Money Managers and they’ll be able to look at your upcoming budgeting with you to see if there’s anywhere you can free money up from temporarily.

The thinkmoney Personal Account has a monthly management fee of £10.95 – for more information, click here.

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