Tips on how to beat your overdraft charges

The money you spend is actually borrowed cash - and it comes at a cost

How to beat overdraft charges

Do you see your overdraft as a spending limit? Actually any money you spend from one is actually borrowed cash - and that often comes with a cost.

Regularly using one is an indicator that you need help managing your money, and potentially a sign that your debts could become a problem. Plus with charges for using an overdraft often a lot more than expected, using an overdraft can often make money worries worse.

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See also: One in eight of us hit by unfair overdraft fees

Many banks have come under criticism for the fees added to overdraft users, and a few banks are changing their policies as a result. If you bank with Lloyds, Halifax or Bank of Scotland you could be about to see the end of extra overdraft fees.

The banking group announced this week that from November 2017 customers won't get charged for going over their overdraft. There'll also be a simpler 1p per day charge for every £7 of planned overdraft used, though in some cases customers could end up paying more.

Generally though it's welcome news. However, even if other banks make similar changes, if you need to use an overdraft for anything other than emergencies or short-term expenses you'll still losing out.

So how can you beat overdraft charges?

Move any savings over

If you have money saved up elsewhere you're usually better off using it to keep your account balance above zero. With interest rates generally low at the moment, using an overdraft will be costing you more than you're making.

Only use it in emergencies

Your spending limit should be when your bank balance reaches zero. If you keep spending after that on non-essentials you're going to be putting yourself in debt. So don't think of your overdraft as an extension of your disposable income. instead, treat it as a buffer to help you in emergencies.

Track your spending

Many people don't realise they've gone overdrawn until it's too late and the fees have stacked up. The easiest way to avoid it happening by accident is to use your banking app and check it regularly. Make sure you open up any letters you get from your bank too, as they might be informing you of changes to your overdraft.

Switch bank

If you're regularly in the red, it might make sense to change your bank to one which has lower charges. If you don't go overdrawn by much each month you might even be able to get a small interest-free overdraft. You might be able to get as much as £300 fee-free.

Get an authorised overdraft

Though the Lloyds group are getting rid of charges for unauthorised overdraft (i.e. the ones you haven't agreed with the bank before you need them), many banks still charge more for using one. You may be better off agreeing a limit up front. You can also ask to extend your limit temporarily, essentially increasing how much you can borrow.

Speak to a debt adviser

Finally if you are constantly in your overdraft it's really a sign that you need to get help. There are lots of ways you can get free debt advice, whether face-to-face or over the phone. The debt adviser will help you work out where you can better budget your spending or look at other debts you might have which eat into your income.

This article is provided by the Money Advice Service.

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