LONDON, UNITED KINGDOM -- (Marketwire) -- 12/13/12 -- With the festive season upon us and predictions of a bumper spend on loved ones(i), first direct suggests that customers who plan to use their overdraft to cover any additional spending, review their overdraft limit so it will cover their extra seasonal purchases.
Over a third of Brits have used their overdraft in the past 12 months(i) as it is a very cost effective way to borrow in the short term and this is set to rise as the Christmas cheer gets under way. However shoppers need to understand the cost of their borrowing. Even though first direct current account overdraft interest costs have stayed the same, on average the annual cost of being overdrawn by GBP 500 for 7 days every month has almost doubled in 5 years from GBP 18.94 in 2007 to GBP 40.08 in 2012. This for many would be an unnecessary extra cost to the festive bill.
Andy Forbes, Head of Products at first direct commented, 'An overdraft is a convenient way to borrow for short periods without having to arrange a specific loan. Arranging an adequate limit on your account means you know you have the flexibility to spend up to that amount.
'With our 1st Account there is no cost for setting up or changing your limit so it makes sense to request a limit appropriate to your needs. At first direct there is no interest charged if you keep your overdraft balance under GBP 250 and higher balances are charged at a competitive 15.9% EAR.'
Andrew Hagger from Moneycomms added, 'If you ask people how much it would cost them to use a GBP 500 authorised overdraft facility with their bank, many wouldn't have a clue. Unfortunately it's not until interest charges and fees are debited to their accounts that some people realise just how expensive it can be.
'Although daily fees may be seen as more transparent and easier to calculate, it can prove to be a very expensive way of borrowing, particularly for smaller sums. A bit of planning can make an overdraft a sensible way to manage the costs of the festive period.'
Sept 2007 Annual cost of authorised GBP 500 overdrawn balance for 7 days every monthAbbey 16.9% EAR GBP 19.45Bank of Scotland 18.9% EAR GBP 21.75Barclays (BankAccount) 15.6% EAR GBP 17.95Clydesdale Bank(Current account plus) 9.6% EAR GBP 11.05Co-operative Bank 19.5% EAR + GBP 15 per(current) annum GBP 37.44First Direct 10.9% EAR GBP 12.54Halifax (Current) 18.9% EAR GBP 21.75HSBC bank Account 18.8% EAR GBP 21.63Lloyds TSB Classic 19.3% EAR GBP 22.21Nationwide Flex 7.75% EAR GBP 8.92NatWest - Current Plus 19.9% EAR GBP 22.90RBS - interest payingcurrent account 19.9% EAR GBP 22.90Smile 11.9% EAR GBP 13.69Yorkshire bank - 9.6% EAR GBP 11.05Current Account PlusAverage 14 Accounts GBP 18.94 per year Nov 2012 Annual cost of authorised GBP 500 overdrawn balance for 7 days every monthSantander - Everyday GBP 1 per day (max GBPCurrent 20 per month) GBP 84.00Bank of Scotland - GBP 93.80 (first GBPclassic 19.94% + GBP 6 pm 25 interest free)Barclays (BankAccount) 19.3% EAR GBP 22.21Clydesdale Bank(Current account plus) 18.85% EAR GBP 21.69Co-operative Bank 18.9% EAR + GBP 20 per GBP 41.75(current) annumFirst Direct 15.9% EAR GBP 9.15 (first GBP 250 interest free)Halifax (Current) GBP 1 per day GBP 84.00HSBC bank Account 19.9% EAR GBP 22.90Lloyds TSB Classic 19.94% EAR + GBP 6 pm GBP 93.80 (first GBP 25 interest free)Nationwide Flex 18.9% EAR GBP 21.75NatWest - select 19.89% EAR GBP 22.89RBS - Select 19.89% AER GBP 22.89Smile - Current 18.9% EAR GBP 21.75Yorkshire bank -Current Account Plus 18.85% EAR GBP 21.69Average 14 Accounts GBP 41.73 per year
Research by Andrew Hagger - MoneyComms.co.uk -22 November 2012
(i)Research by Moneysupermarket
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