Five Questions About: Overdrafts

Which banks are changing overdraft charges?

From February, current account customers of Royal Bank of Scotland, which owns NatWest, who borrow without authorisation will be charged £6 per day. There will be an additional £6 charge for unpaid items, such as direct debits or standing orders that are processed.

Will I pay interest on my agreed overdraft?

The average authorised overdraft rate is 19.1 per cent, but some banks charge a daily fee, rather than an annual rate of interest. The Halifax charges £1 per day on authorised overdrafts up to £2,500 and £2 per day above that. Some current accounts have free overdraft buffers. First Direct, for example, gives customers a free overdraft up to £250.

Will I pay more interest ifI exceed my agreed overdraft limit?

Some banks charge a higher rate of interest. Santander for example, charges 28.7 per cent. Others charge a daily fee – this is what NatWest and RBS will be introducing in February.

Is there anything else to watch out for?

The Nationwide Building Society levies a £20 fee for unauthorised overdrafts. Customers are also charged £30 for any transactions declined and £21.50 for any paid.

What is the best current account?

Much depends on how long you are overdrawn for. If you tend to just slip into the red by a relatively small amount, an account that offers a free buffer could be most suitable, such as the First Direct 1st Account.

For those who tend to spend most, if not all, of the month overdrawn, Santander's Preferred Overdraft Account is the market leader. It offers a free overdraft for the first 12 months. Once the introductory period has ended, the standard authorised overdraft rate will apply, which at 12.9 per cent is significantly lower than the average.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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