Festive overspending and the painstaking wait for the first payday of the year make December and January the peak months for overdraft usage, new research[1] from Nationwide shows.
A quarter (25%) of people who use their overdraft say December is the month they are most likely to go into their overdraft more or earlier than usual, closely followed by January at 19 per cent.
However, Nationwide is softening the blow as from 13 November, new and existing current account customers will benefit from a £50 interest free overdraft buffer[2]. It will apply to new and existing overdrafts on all the Society’s three main current accounts - FlexPlus, FlexDirect and FlexAccount. This change reduces the representative APR to 38.2 per cent, down from 39.9 per cent.
With the introduction of the buffer, around a quarter of Nationwide’s overdraft users won’t pay any interest, while all overdraft users will see a benefit as those who borrow more will now pay a little less in interest charges.
According to the research, people who regularly, or always, dip into their overdraft spend an average of 12 days per month overdrawn, borrowing an average of £178 each time. The top reasons for going into an overdraft include spending too much at Christmas (34%), household bills being higher than normal (31%), income not keeping up with rising bills (29%) and an unexpected expense (24%).
Marta Edwards, Head of Current Accounts at Nationwide Building Society, said: “The festive period brings lots of extra expense and the January payday can often feel like it is taking an age to arrive. An overdraft can provide a safety net for consumers helping them bridge the gap until payday arrives.
“Our new buffer will be welcome news for all overdraft users, with those borrowing £50 or less not paying any charges. For those borrowing more, they will benefit from paying less interest. Most people use an overdraft occasionally, but if you are worried about your reliance on it then get in touch with your bank or building society as they will have a range of support available.”
Four ways to help avoid dipping into an overdraft:
- Regularly monitor your account: a fifth (20%) of people said they went into their overdraft because they didn’t keep an eye on their spending. A bank or building societies Banking App will allow you to access your account from your phone.
- Consider having separate accounts for bills and non-essential spending: work out how much discretionary money you have left at the end of each month and consider putting this in a separate account to make it easier to budget.
- Set up text alerts: An alert can be set up on your accounts to receive a text when you have dipped into their overdraft. This can prompt you to take action and move money from elsewhere to avoid overdraft charges.
- Get into the savings habit: By steadily building up a pot of money, you have something you can dip into to cover unexpected bills or cover the costs of Christmas. Consider a review of your bills - if you haven’t switched savings account in a while, you may be able to get a better deal and the money saved could be used to start building up a nest egg.
As a responsible lender, Nationwide has a range of tailored support for customers struggling with an overdraft or other debts. Details of how to get in touch and the support available can be found here - Cost of living – how we’re here for you | Nationwide
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