Banks Cash In On Dips Into Pre-Arranged Overdrafts


If you are a low to middle income earner, then you’re probably very used to living with managing debt on monthly repayment interest on loans, credit cards and bank overdrafts. You might imagine that the ongoing period of plummeting inflation and low interest rates would have helped ease the shortfall after all essential bills have been met and necessary spending money. Not necessarily so…

A new study finds that current account customers are being stung by higher than ever fees for temporarily dipping into their pre-arranged overdraft. The amount may be desperately needed just to get through the week or even pay off a monthly arrears to help with getting out debt. Surveys continue to find that the largest proportion of monthly wage packets are used simply for buying household essentials. One in six borrowers also now work in a second job just so they can have enough money to cover their most important bills.

Heavily penalised

The fee, which is increasingly on top of the interest charged on the borrowed amount has in some cases, risen to as five times the amount from before the financial crisis. Nearly three in five of current accounts now come with a fee for drawing on a pre-arranged overdraft compared to just over one in five in 2008.

An unfair burden seems to have been placed upon low wage earners who constantly struggle to meet their monthly commitments. Despite responsibly pre-arranging an overdraft, those individuals who actually do need to make use of the facility appear to be heavily penalised by their banks. By contrast, customers who take an unauthorised overdraft have actually seen a drop in the amount they are charged by the bank.

Capitalising on those who least can afford the charges

In May, one study found that a quarter of those with bank savings were forced to dip into their savings. One in six said they had been forced to overspend on their current account because they needed the money to pay for emergency home or car repairs. Around one in eight had used the money for unexpected energy bills or simply just to pay off debts they owed. Separate research has found that as many as four in ten people in the UK have said they have been behind in paying their rent, gas and electricity and council tax.

Pre-arranging an overdraft just in case it’s needed to pay an essential bill may seem the sensible thing to do. But with banks capitalising on those who least can afford the charges it may be time to seek some budgeting / debt advice before interest rates start to rise once more.