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Overdraft fees: Don’t Get Trapped

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One day with any luck the shockingly high bank overdraft fees and charges that kick in when you go overdrawn will be a thing of the past, but for the time being we’re stuck with a collusive banking sector that’s legally entitled to charge us disproportionate amounts of cash when we go one penny over our limit. The banks claim that the costs are based on the administrative resources needed when we go overdrawn, but no-one truly believes this: The cold, hard reality is that the banks do it because they can.

High overdraft fees

Fees as high as £25-£30 or more for failed transactions are not unknown, which for many struggling parents is too much for swallow: After all, when one of your utility bill payments is missed, you’ll be punished hard enough by them with threats of disconnection – you really don’t deserve more misery on top.

What can you do to stop the fees?

But what can you do? Firstly don’t put your head in the sand and hope that this month it’ll somehow work out. Predict what’s coming and if you’re going to be short, make provisions:

Use a credit card?

The first thing you may want to think about is simply use your credit card instead for some of the expenditure that would normally come out of your current account: If you’re on a zero percent deal with your card provider and are confident that you can pay off the balance once you’re past the danger zone each month, then it’s a good option.

You can also effect a money transfer into your current account via a credit card. However, whilst there are plenty of zero percent credit cards on the market, that rate usually only applies to purchases you make. Using the card to transfer cash into a current account invariably comes with a fee, typically around 4% of the amount you transfer, so suppose you know you’re going to be £45 overdrawn this month:  You could make a money transfer on your credit card for £50, which at a rate of 4% would cost just £2. That would save you the aforementioned £25-£30-plus overdraft fee, so it would be well worth it.

If you take this option you’ll need to keep an eye on your credit card balance as it’s all too easy to forget about it and get into the habit of doing this month on month, and before you know it your card is accruing significant levels of interest.

Overdraft fees

High interest Payday loans?

Then there’s always the dreaded payday loan: Debt charities are warning struggling consumers away from these companies, but the fact is that borrowing from one of them purely to avoid overdraft fees can be cost effective – provided you pay them straight back once you’re out of danger with your bank. Some of them are offering zero percent for the first week or so with around 50p a day per £100 borrowed thereafter. Even so, if you borrowed £100 and didn’t pay them back for a month you’d owe around £10 in interest, which is still less than most overdraft fees.

Generally speaking, payday loans have an appalling reputation, but then again if you look at a typical overdraft fee these days and work it out as a percentage of the amount you’ve ‘borrowed’ (i.e., gone overdrawn by) then the overdraft looks like a even worse deal.

Prepaid cards could be the answer

However, there’s now a much more prudent option available: The new kid on the personal finance block these days is the prepaid card. You can transfer cash from a current account onto one of these, giving you a set amount you can spend which you can’t exceed. They’re touted as being ideal for people going on holiday, as if they’re stolen nobody can take more than the amount loaded onto them – but generally speaking they’re great for stopping you spending too much as well.

If you only ever use your prepaid card when you’re out shopping, there’s absolutely no way that you can accidentally make an impulse purchase that takes you over the limit. Obviously you’ll still need to keep an eye on other outgoings from your current account, like utilities and so on, but a prepaid card may be all you need to instil some discipline into your spending and stop you doing something you’ll later regret.

Stop the high charges

So don’t get stung by high banking charges. Work out if you’re heading for trouble each month and make necessary provisions. There are ways to beat the banks, and let’s face it: They need teaching a lesson or two…

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About Rebecca Robinson

About Rebecca Robinson

After spending the last 8 years juggling life as a mum of two, wife and working full time as a Project Manager for a global telecommunications company, Rebecca Robinson made the decision to follow her love of writing and took the plunge; turning her passion into a full time career. Since becoming a full time writer, Rebecca has worked with various media and copy-writing companies and with the ability to make any topic relevant and interesting to the reader, now contributes to The Working Parent on articles ranging from credit cards to teenage relationships. Ever the optimist, Rebecca's dreams for the future include a house in the country filled with children, dogs and horses in the field!

Website: Rebecca Robinson

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