Current Account Case History

Through an oversight Mrs E went overdrawn on her current account for two days. When her next statement arrived she found that she had been charged well over £60 - nearly twice the amount of the overdraft. The charges were so high because the bank, like many others, operated on a three-month charging period: for every debit transaction - cheques, cash from dispensers, standing orders, direct debits - she was charged 28p, plus a maintenance charge of several pounds. It could have been worse - she didn't get a letter warning about the unauthorised overdraft and none of her cheques bounced (some banks charge (£45 or £60 for these). There were no charges for credit transactions, either.

Moral: consider switching to an account, such as those increasingly available from building societies and some banks, which charge interest only for the time you're overdrawn.

TIP - If you accidentally go overdrawn and you're not often in the red, it's worth asking the manager to waive the charges. This may happen, especially if you are looked on as a particularly valued customer.

With some newer bank accounts, there's a built-in interest-free and charge-free overdraft. The amount you can borrow is limited - for example, a maximum of £450, and instead of interest and charges, you pay a flat fee of around £40 a month both when overdrawn and when in credit. You know exactly where you stand with these accounts, but for most people they work out more expensive than accounts charging only when overdrawn.

TIP - Building society accounts usually work out cheapest if you tend to go overdrawn, because there's normally only interest to pay but no transaction or other charges. At least two banks also offer overdrafts on this basis.

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Charges When You're Overdrawn

Putting your current account into overdraft means you pay extra. You'll have to pay interest on the amount you borrow (which will usually be at a higher rate than normal if you haven't arranged in advance to have an overdraft). But the amount of interest won't usually be very great if you slip into the red only occasionally. The real problem with most bank accounts - but not with building society accounts - is charges:

- transaction charges: with most traditional bank accounts, if you're overdrawn, you have to pay around 20p to 40p in charges every time money is withdrawn from your account... see: Charges When You're Overdrawn

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