A survey from MoneyExpert.com has shown that around 66 per cent of people in the UK are unclear about the charges that apply on current accounts when they become overdrawn.
The financial comparison website claims that 30 million people have no idea how much their bank charges for being in the red. Research undertaken by the company found that even those who had successfully reclaimed bank charges were unable to confirm how much they amounted to.
Chief executive, Sean Gardner, said: "Bank charges may be a hot topic in the media but many people's idea of how much they are being charged for their overdrafts is horribly wide of the mark.”
He explains that "average unauthorised overdraft interest rates are around 25 per cent and fees for getting overdrawn without permission can be as much as £30.
“It's critical that people check with their bank to ensure they are borrowing money at a competitive rate," he stressed.
Over a third (35 per cent) of respondents that admitted not knowing their authorised overdraft rate believed it was only 5% interest - lower than the most competitive personal loan rate on the market. Banks actually charge 12.4 per cent on average for an authorised overdraft. Only 12 per cent knew this.
Unauthorised overdrafts were another area where people were unsure. The company said that, while the average unauthorised overdraft rate is 25.6 per cent, 11 per cent, or 5.2 million people, believe they are charged 10 per cent or less.
Approximately 18 million people (41 per cent) were also totally unaware of bank charges that apply if they exceed their overdraft limit. A further 5.5 million people (13 per cent) believe they would be charged less than £20, despite the average charge standing at £28.
“While it's ultimately the customer's responsibility to avoid going beyond their overdraft limit, banks should make their charging structures more transparent. They could also provide a clearer indication of when customers are close to going in the red,” said Mr Gardner.
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