£700m Wasted on Overdrafts

Brits with current accounts with one of the big four banks waste more than £700 million a year paying too much in interest charges on their overdrafts, according to a new survey.

Three quarters of people with current accounts have an overdraft facility of which around 42 per cent are overdrawn, according to YouGov.

But those who bank with HSBC, Barclays, Natwest/Royal Bank of Scotland and Lloyds TSB pay interest of between 14 and 30 per cent a year compared to other financial institutions such as Alliance & Leicester, which offers rates of 5.9 per cent.

With the average UK overdraft coming in at between £400 and £500, YouGov calculates that customers are collectively paying £700 million too much.

Lloyds and Natwest charge the most with 18.2 per cent and 17.69 per cent respectively on overdrafts agreed with the bank, but rates can soar to around 30 per cent for those who go beyond this limit.

Simon Ripton, the current accounts manager at Alliance & Leicester, told the Independent: "Most people today see an overdraft as an essential part of their current account and frequently rely on it to support the cost of day-to-day life, so it's astonishing that there is still so much confusion about whether or not you're allowed to switch with an overdraft."

More than one in three people wrongly believe that they cannot switch bank accounts if they are using their overdraft.