Money Insider: Don't pay the penalty for an early payday


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The Independent Online

The run up to Christmas is the most expensive time of the year for most of us so it's a great help if your employer enters into the festive spirit and stumps up your December salary a week or two in advance. This may initially prove to be a godsend with a seemingly endless number of presents to pay for plus additional parties and nights out celebrating with family and friends.

However the downside of getting paid that bit earlier means it's even easier to lose track of all those debit card transactions and direct debits, particularly when your next payday could be up to six weeks away. Failing to keep a close watch on your current account balance and adopting a "worry about it later" attitude could see you exceeding your overdraft limit and facing a big bank charges bill come the first few weeks of 2012.

If you don't already have an agreed overdraft in place or you think you could do with a little more financial breathing space over the festive period, speak to your bank or building society now to arrange an authorised overdraft sufficient to see you through to the end of January. It's usually a pretty pain-free process and can be arranged very quickly either online, by phone or if you prefer the face-to-face approach then pop down to your local branch.

Once you've got your safety net arranged, make sure you check your account on a frequent basis – there's no excuse not to these days, with the information constantly available online, on your Smartphone or through an ATM.

To put into perspective the importance of staying within your agreed limit, I looked at how much it could cost you if your bank allows you to drift £200 over your limit courtesy of two £100 debit card payments and then your account remains overdrawn by this amount for seven days until your January salary is received. The numbers are quite scary, with customers using a Santander everyday account facing a bill of £85, Lloyds TSB customers £75.74, NatWest £42 and Halifax £35 – so it's definitely worth being a little proactive.

One of the biggest problems people have with unauthorised overdraft charges is that there's no common policy among banks. Some charge fees daily, some charge monthly, some do both, and the level of charges varies widely, but whichever tariff you're signed up to, it can end up hitting your pocket hard.

If you keep on top of your spending and stay within your agreed limitthen the charges you incur will be minimal, and by keeping tabs on your money at least you won't give the banks the opportunity to take the shineoff your Christmas and New Yearcelebrations.

Euro crisis pushes up mortgage rates

The eurozone crisis is starting to have an impact on mortgage rates with a number of lenders having raised the cost of home loans during the last couple of weeks.

The three-month Libor rate, which banks charge each other for loans, rising steadily over the last couple of months, now standing at 1.04 per cent and more than double the 0.5 per cent base rate. Libor has increased because banks don't know how much exposure their competitors have to the likes of Greece and Italy and are concerned about the fallout of potential defaults in these countries.

On top of this, only last week Sir Mervyn King called for banks to bolster their capital reserves in the face of the "exceptionally threatening environment" posed by the eurozone issues.

It's no surprise that many of the biggest lenders, including Halifax, Santander, Nationwide, Northern Rock and Cheltenham and Gloucester, have increased rates on some mortgages. In late summer we saw some of the lowest mortgage rates in the last 20 years, but the market is likely to have bottomed out and more expensive home loans are on the way.

There are still some exceptional rates available, including 2.99 per cent (£495 fee) for a 2-year fix from Yorkshire Building Society and a 5-year fix from The Co-operative Bank at 3.59 per cent (fee free) both available to 75 per cent loan to value.

However if you've been putting off a decision to remortgage, now may be the time to consider your options, before the increased cost of wholesale funds gathers pace and lenders increase rates further.

Andrew Hagger –

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