Brits spend £1.4 billion a year on overdrafts

9.7 million current account customers are overdrawn by an average of £697, totalling £1.4 billion spent on bank overdrafts a year, research by TotallyMoney finds.

Taking the average balance, and a typical rate of 39.9%, TotallyMoney states that a customer would pay £278 in overdraft interest each year. This means the average overdrawn borrower will pay a £278 in interest per year to a bank charging 39.9%.

Meanwhile, those spending an average of 20 days being £1,000 overdrawn, will pay £262.3 in interest.  Bank of England data shows that the effective overdraft rate has increased by 2.07%- from 20.85% to 22.92%-meaning it’s becoming an increasingly expensive way to borrow.

TotallyMoney CEO, Alastair Douglas said “For some, overdrafts are a ghost debt — there’s no separate card, account, or app — and if you’ve been with your bank for years, you might not remember ever applying for one. That means you might not even really notice if you’re using it, especially if you don’t regularly check your bank statements. But the truth is, overdrafts are credit products, and just like a loan or a card.

“So you must treat it like any other form of borrowing, use it responsibly, and keep an eye out for cheaper and better alternatives. You might not realise it, but some high street banks are charging overdraft customers almost 40% interest, making them one of the most expensive mainstream ways to borrow. By avoiding expensive overdraft fees, you’ll be able to get out of debt quicker, save money and start moving forwards. Whether that means having more money to spend on yourself each month, or saving for a rainy day, you’ll be unlocking a life of more choices.”

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