IVA definition and what it means for you
Find out which debt solution is right for youGet started
Answer a few simple questions
See if you are suitable
Understand your next steps
Read our guide to find out how to avoid bank charges.
So, this is part two of our guide to avoiding bank charges. If you missed part 1, why not have a read. If you’ve already read part 1, here are some more ways you can avoid getting stung with unwelcome bank charges.
Some banks offer what’s called a grace period. Again, using Lloyds as an example, they’ll give you until 3.30pm on the day you go overdrawn to pay in enough money to prevent you from being charged for using your overdraft. So, if you accidentally dip into your overdraft and realise, you could avoid charges by getting back into the black before 3.30pm. Other banks do this too, RBS for example.
However, some banks offer no grace period, but a larger buffer and other ways to prevent you from getting huge charges instead. For example, the Co-op offer a £20 buffer and limit the amount of charges you can be given in a month, as well as considering refunding a charge if you usually have a good record on your account.
So, what we’re really saying here, is check with your bank to see what they’re rules are.
Are you paying to use your authorised overdraft?
If you’re one of those people who simply sees your overdraft as extra money for you to spend each month, you should really reassess this thinking because it’s costing you money. It may not be in the form of charges, but many banks apply a fee for using the overdraft and you will almost certainly be charged interest on the amount you’ve borrowed. We say borrowed because, let’s not forget, what an overdraft is, it’s a short-term loan from the bank.
Of course, some bank accounts have fee-free or interest-free overdrafts, but don’t be caught out by thinking you’re not being charged anything. You can check on your banks website, as they have to detail all the charges they apply, to see what they’ll charge you.
For example, if you’re a Lloyds customer, and you go over the £10 buffer allowed on your account, you’ll pay £6 per month, regardless of whether the overdraft is authorised or not. Then on top of that, you’ll have to pay interest on the amount you’ve borrowed that’s above any fee-free portion you’ve been given – this is 1.53% for most of their current accounts.
If you’re not sure what you’re paying for either a planned or unplanned overdraft, check your statements or your banks website.
Check your balance daily
Another simple way of avoiding charges is to keep a really close eye on your balance! These days, as most banks offer online banking and an app, it only takes a few seconds to login and check where you are up to. Knowing exactly how much you have coming in and going out of your account, on a day-to-day basis, will help you monitor and plan your spending. So, if you think you might run short of money, you can do something about it before it happens. Give your bank a call to see if you can set-up a temporary overdraft, which is far better than being charged for unauthorised borrowing.
If you log in online, you may see two balances – one called ‘account balance’ and one called ‘available balance’, which can get confusing! Your account balance shows the amount that’s in your account, but does not include any transactions that are pending, which are transactions the bank knows are going out of your account, but they’ve not yet completed processing them.
It’s like a pre-warning for you – it says it may look like you have this much money, but actually there are those new work shoes you bought on Saturday, and the cinema tickets on Sunday night, that have not yet come out of your account. This could include a card payment, a cheque waiting to clear, a Direct Debit or standing order.
So always look at the available balance and work from that.
An interest free credit card? Finally, an alternative might be an interest free, or very low rate, balance transfer credit card. Be careful though, as some don’t allow you to transfer directly into your bank. If you do try this option, make sure you don’t get tempted into using the credit card for other purchases or start using your overdraft again once it’s been cleared. Be strong and disciplined and resist the urge.
And please don’t forget that the card only has as 0% interest period for a certain amount of time. So, you’ll need to pay off the amount you’ve transferred before that ends, or you will end up paying interest on it.
So, while it may seem like bank charges are just a fact of life, the ball is more in your court than you think. Learn what you’ll be charged for and when and you’ll soon be back in the black.
by Shelley BowersBack to blog home