August 24, 2011 02:30 ET

Nationwide's Top Tips for Managing Your Overdraft

LONDON, UNITED KINGDOM--(Marketwire - Aug. 24, 2011) - With inflation riding high at 4.4%(1) and the persistence of sluggish economic growth, some consumers may find that they are dipping into their overdraft more regularly.

An overdraft can be a cost-effective short-term credit facility; for example, using a £500 overdraft facility for 10 days in a month could cost as little as £2.50. However, recent changes to overdraft charging structures make it increasingly important for consumers to match their provider to their needs.

John Crossley, Nationwide's head of current account, offers his tips on how best to manage your overdraft.

Arranged Overdrafts

Many people will have an agreed overdraft limit with their bank or building society. Those using this facility will be charged either a rate of interest or a daily fee, and in a small number of cases, an "arranged overdraft fee".

Different fee structures have their own merits depending on how your overdraft is used. This is important for you to know because, depending on what you're charged and how you're using your overdraft, you may find yourself better off by shopping around and finding a current account with a better deal.

Overdrafts are a useful budgeting tool, allowing consumers to manage their finances more effectively and flexibly over the short term.

Nationwide's FlexAccount offers an overdraft rate of 18.9% EAR – lower than a number of high street providers. In addition, main FlexAccount holders(2) can also be eligible for Free European Travel Insurance and a wider range of "Flexclusives", making it a very attractive current account.

For example, infrequent and/or smaller value overdraft users may find it better using an account with just a monthly interest rate without a daily fee. In contrast, if you have a larger overdraft and you use it for a longer period of time, then a daily fee structure may be best for you.

Illustrative example
£250 into arrange overdraft (O/D) for 15 days
Authorised O/D rate Arranged O/D charge Daily fee Total p/e Annual saving
Nationwide 18.90 % £ - £ - £ 1.94 N/A
Barclays 19.30 % £ - £ - £ 1.98 £ 0.49
Halifax 0.00 % £ - £ 1.00 £ 15.00 £ 156.70
HSBC 19.90 % £ - £ - £ 2.04 £ 1.23
Lloyds 19.30 % £ 5.00 £ - £ 6.98 £ 60.49
NatWest/RBS 19.89 % £ - £ - £ 2.04 £ 1.22
Santander (Preferred) 0.00 % £ - £ 0.50 £ 5.00 £ 36.70
Santander (Everyday) 0.00 % £ - £ 0.50 £ 7.50 £ 66.70
Post any introductory offers

Getting your usage matched with the charging structure is very important. Amazingly, someone who is regularly overdrawn by as little as £250 could save up to £156.70 per year, just by switching to a current account that is more suited to their needs.

My top tip:

  • Work out how often you actually use your overdraft and to what extent you use it, then consider how a current account with a daily fee could affect you in comparison to an account with an interest rate.

Unarranged overdrafts

It's not uncommon for unarranged overdrafts to be offered by providers up to a specified reserve limit. This is an additional level of overdraft that hasn't been formally agreed with your provider but where payments are still made.

Most providers will: (1) charge a fee for using an unauthorised overdraft, (2) charge for making payments and (3) charge either an interest rate or daily fee.

My top tips:

  • Check your overdraft amount with your provider to avoid unauthorised overdraft charges.

  • Ask your provider what your reserve limit is. Some providers, such as Nationwide, allow its customers to remove their reserve limit. This can avoid you unknowingly using an unauthorised overdraft.

  • Use tools that suit your lifestyle to manage your current account; there are a wide variety available such as Online or Telephone banking. You could also set up balance text alerts to help.

In summary, I encourage everyone who uses an overdraft to review how they use their account to see if they can save money. While it's impossible to give a one-size-fits-all definition to which overdraft charging structures are better, a lot of money can be saved by choosing the right type of account.

About Nationwide

Nationwide Building Society is the world's largest building society and a top-three provider of mortgages and savings in the UK. It is also a major provider of current accounts, credit cards and personal loans. With around 16 million members, Nationwide has a relationship with around a quarter of the UK population.

Since the credit crunch began in 2007, Nationwide has remained profitable against a very difficult economic environment. In the year 2010/11, Nationwide made a strong underlying profit of £276 million – up 30% from the previous year. Its strong financial performances and prudent business model means that Nationwide is included in Global Finance magazine's Top 50 Safest Banks in the World.

Notes to editors:

(1) Office for National Statistics

(2) For full eligibility criteria, please take a look at the policy summary.

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