- Interest-free overdraft limits on the increase
Nearly 40 per cent of all current accounts on the market offer an interest-free overdraft limit, although fewer than half that number will automatically set up an overdraft for customers straying into the red, according to new research from MoneyExpert.com.
The independent comparison service says the number of accounts with the zero per cent buffer zone has increased from 32 last October to 63 now with an average limit of £428, up from £368 last year.
But MoneyExpert.com says only 44 per cent of accounts with interest-free overdraft limits will automatically set up an overdraft facility for customers who stray into the red. This means many customers who want an interest-free limit must act themselves.
And with some interest-free overdraft limits going as high as £3,500, MoneyExpert.com is urging customers to check the terms of their bank account as they could avoid borrowing on a credit card or personal loan if their overdraft can tide them over high-spending periods.
The average interest rate for customers who go into the red without permission across the 159 current accounts on the market is a punitive 21.05 per cent. At that rate if you were to spend £500 on an unauthorised overdraft you could incur £105 annual interest.
Sean Gardner, Chief Executive of MoneyExpert.com, said: "Banks have come in for criticism for their overdraft charges and low credit interest payments. But this is an example of a genuinely useful feature and it’s up to customers to ensure they make the most of it."
"A £500 interest-free overdraft can go a long way and for many that should tide them over into the New Year. Of course, you can get even more zero per cent credit by opting for a credit card, but a free overdraft would seem a sensible way to keep your borrowing under control."
"However the cost of going beyond your agreed credit limit is still massive. Up front fees and high APRs mean borrowing without permission can be a costly mistake. It’s something you could avoid with a higher credit limit on a credit card."
"The responsibility is ultimately with the customer. If you think you should be getting more from your current account, it’s easy to switch banks these days, so vote with your feet."
MoneyExpert.com’s switching index, which monitors consumers’ switching of a range of products every three months, shows more than 3.6 million people have moved current account provider in the past year – around 300,000 a month.
The Banking Code states that current account providers have to provide details of standing orders and direct debits within three working days of a request from a new bank. The new bank has to provide details of the new account within 10 working days after approving an application. Five years ago the process could take as long as 12 weeks.
* MoneyExpert.com analysis on 10th December 2007 and 9th October 2006