New research by TotallyMoney data found that one in five adults (19%) are overdrawn by £697 each day with many high street banks are charging between 35%-49.90% APR. This makes overdrafts an expensive way to borrow money, and in line with a typical near-prime personal loan (a prime personal loan would usually be below 10% APR).
Alastair Douglas from TotallyMoney said “Overdrafts are for many a ghost debt. They may have applied for, or been offered it years ago, and it simply sits as an extension to their current account. There’s no separate card, bank, or app — and the customer may not even be aware that their overdraft is a type of borrowing, or that they can be quite expensive. And because there are not the same balance transfer offers you can get with credit card debt, some customers might be sitting in their overdraft for all, or most of the time. This means they might be paying interest month after month, and struggling to get back in the black.”
“Avoiding interest charges means you can make the most of your money, and focus on repaying the debt, not making the bank richer. Once you’ve done that, you can get on the front foot, and start saving, earning interest, and creating financial momentum.”
Andrew Hagger, Personal Finance Expert, Moneycomms.co.uk said “There was a time when authorised overdraft rates were pretty much on a par with standard credit card rates, but now it’s very different, with overdraft rates heading towards double the rate of credit card interest.
“Paying from 35% to nearly 50% for an overdraft is difficult to justify, especially as this is for an agreed overdraft limit.If you’re only borrowing for the odd day here and there it’s less of an issue, however, if you’re in the red for a couple of weeks or more each month, these rip-off rates will only make your financial position worse.
“Rates of 35% or more are usually associated with borrowers who have previous credit issues and are classified by banks as ‘subprime’ borrowers.Using a credit card can be a far more cost-effective way of managing your cash flow these days, even more so if you’re able to clear your statement balance in full each month.
“It’s easy to fall into the habit of relying on your overdraft month after month and the high cost will soon make a bad situation far more serious.”
| Provider | Rate |
| Santander | 39.94% |
| HSBC | 39.90% |
| Lloyds | 19.9% to 49.90%* |
| Halifax | 19.9% to 49.90%* |
| Nationwide | 39.90% |
| First Direct (first £250 free) | 39.90% |
| NatWest | 39.49% |
| Barclays | 35.00% |
| Starling Bank | 15% – 35%* |
| Monzo | 19% – 39%* |
| *Subject to credit status.
Research conducted by Moneycomms.co.uk October 2024 |
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