New research from uSwitch reveals two thirds of current account holders are in the dark about whether they can switch to a new account if they are overdrawn.
Just over 70% of UK current account customers have access to an arranged overdraft, and the average overdraft is £266 each month, but our research indicates these overdrafts are stopping people switching banks.
This comes despite a push from the Current Account Switching Service (who are behind the seven day switch guarantee) to encourage more people to switch.
Switch to a better current account
Compare current accounts from different providers and find a bank that works for you.Compare current accounts
One in three rely on overdraft to make it through the month
A third of people are heavily reliant on their authorised overdraft to get through the month, this includes 13% who are permanently overdrawn and 5% who fall back into debt soon after they get they paycheck.
A quarter of families reliant on overdrafts
Families with children face are even more reliant on their overdraft. Nearly a quarter say they are permanently overdrawn, or are only out of their overdraft for a short period of time after being paid.
Average family £400 in the red
On average, families are almost £400 into the red at the end of each month.
Arranged overdrafts at the main high street banks costing nearly 20% and can include other charges, so each family could be paying out nearly £150 every year in authorised overdraft fees alone.
How much do overdrafts cost?
No way to find out if overdraft will be matched
There is no way to find out if you will be offered an overdraft with the new account before a current account switch takes place.
This lack of clarity has left 14% of current account switchers in difficulty when they were offered a lower arranged overdraft after switching.
And this is deterring switching with one in three saying they would be unable to pay essential bills or meet unexpected costs if their overdraft limit was reduced.
Overdraft users could save £260 by switching
The Competition and Markets Authority has already said that overdraft users are less likely to switch account than other customers, but believes “heavy overdraft users could save up to £260 a year if they switched [to a new account].”
Not enough help for “overdraft prisoners”
Tashema Jackson, money expert at uSwitch.com said
“Millions rely on their overdraft every month just to make ends meet. Yet they’re not only being stung by high charges and fees, but many also feel like they’re not eligible to switch to a better deal. With some accounts charging nearly three times more than others for an arranged overdraft, customers should be able to simply compare all the options to make sure they’re not paying over the odds.
“While the CMA has said it will look to take a tough stance on capping unarranged overdraft fees, it’s doing little to help overdraft prisoners who feel trapped and unable to switch. We’re calling for the final retail banking market investigation to assure people that if they do switch their current account, they won’t be left high and dry by an overdraft that doesn’t meet their needs.”
Cut overdraft costs with a 0% money transfer card
The first step to cutting overdraft costs is obviously to pay it off by cutting back your costs and trying to save money where you can.
If this isn’t an option you could consider a 0% money transfer card which will allow you to transfer money from your credit card to your current account. This will move your overdraft debt onto the money transfer card, which could have a 0% interest period lasting as long as 40 months.
Typically you’ll need to pay a transfer fee of around 4%, but if you have an overdraft that you can’t clear this can give you some breathing space and save you a lot of money on interest charges.
Compare money transfer cards
Find a credit card that will let you transfer money into your current account.Money transfer cards
However, moving debts isn’t suitable for everyone and you should consider this carefully.
If you are seriously struggling it may be worth seeking independent free financial advice.
- uSwitch Current Account Awards Who won the uSwitch Current Account Awards?
- How To Find The Best Current Account There’s no such thing as the best current account, just the best for you