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Why it pays to keep a beady eye on the overdraft fees your bank will be charging.
As we try to recover from the Christmas binge, many of us are becoming reacquainted with our overdraft. What we might not realise, though, is just how much our bank might be charging in overdraft fees. However, with a little vigilance you’ll be able to see what your bank is charging and best of all to minimise your costs.
Secret overdraft fees
When you look at it the relationship between banks and their customers is a little one sided. On the one hand they are charging high interest on loans and overdraft while offering tiny amounts of interest on savings and current accounts. Given that banks use the depositors’ money to make investments and send out loans, we are effectively giving our banks an interest free loan – cash which they can use to boost their own profits.
Overdraft fees are big business for banks and account for roughly 60% of all the additional fees they make. Given that the majority of these are paid by the poorest 10%, the banks are making a huge amount of money from the poorest in our society.
Unsurprisingly, they are not keen to tell you about these fees. Indeed, many people in the UK are unaware just how much their bank is charging. This is because, under the law, banks do not have to tell you about any fees they are charging as long as the account setup has warned customers that there will be a charge. As soon as you slip into negative credit, the bank starts raking it all in.
With some banks charging as much as £6 per day for time spent in overdraft it’s no surprise that you can find it difficult to get things moving forward once your account slips into the red.
What to do
So, if you want to avoid a nasty surprise when you look into your bank statement, what should you do? The most important thing to remember is that knowledge is power. Make sure you keep an eye on your bank account to check you’re not going to slip into the red. Plan ahead and look at what charges might be coming further down the line. The more you know about the state of your own finances, the easier it is to avoid falling into a prolonged period of overdraft and to prevent the charges stacking up. In some cases you may even find getting a payday loan can be less costly.
Keep an eye on your bank. Make sure you read and understand the terms and conditions. You’ll need to know what they plan to charge and when. And if you don’t like what you hear then don’t be afraid to swap bank accounts. According to a recent study, you are more likely to opt for a divorce than to change your bank account. If ever there was a statistic which needs to be reversed that’s the one.
As a customer you have considerable buying power. Use it. There are better deals out there both in terms of interest rates offered on current accounts and also fees. The more people make use of their natural consumer power, the more banks will be forced to react and to be more clear about the overdraft fees they charge.