Are bank charges pushing you into an unauthorised overdraft?
Published 5 March 2014
hen you’ve just missed a direct debit, receiving a penalty charge from your bank that pushes you into an unauthorised overdraft could make a bad situation worse
For many bank and building society customers, living in an overdraft has become a way of life. However, if you’re also regularly being faced with bank charges because you’ve missed a standing order or direct debit, you might find yourself heading even further into the red.
You wouldn’t be alone either. Research* we conducted earlier this year revealed that more than a quarter of UK adults paid at least one bank charge in 2013. Of these, more than half were pushed into an unauthorised overdraft because of the penalty.
If you’re someone whose financial services provider charges a fee for being in an informal overdraft, one missed payment soon adds up to a big bill. And if you missed this bill because you didn’t have the money to pay it in the first place, this could add up to a very big problem indeed.
What started out as a single missed direct debit could swiftly mount up if your bank then charges you a penalty fee for missing the payment AND a fee for going into an unauthorised overdraft. You might even have to pay a daily fee for being in this overdraft, which could push you even further into the red.
Young people in the red
We found that young people were the most likely to find themselves going into an unauthorised overdraft after receiving charges from their financial services provider. Of the 25 to 34 year olds we spoke to who had been subject to a penalty by their bank or building society last year, nearly two-thirds had found themselves pushed into an overdraft as a result of paying the charge.
And things weren’t much better for people in the older age groups either. More than half of respondents aged between 35 and 54 years old admitted they had ended up in an informal overdraft because of paying bank charges in 2013.
A different way of doing things
At thinkmoney, we do things differently. We carefully manage our customers’ accounts to ensure that they have the money available to pay their standing orders and direct debits each month. And our accounts don’t have an overdraft facility, which means that our customers know the only money they’re spending is their own.
In return for our management fee, we monitor our customers’ accounts to make sure that their regular outgoings - like rent or mortgage, bills and debt repayments - are all budgeted for. Plus, we never charge for missed payments, so there’s never any unwelcome surprises.
Click here and find out more about how our alternative account works.
**OnePoll questioned a nationally representative sample of 2,000 adults aged 18 and over between 10th January and 15th January 2014.