Your money: DODGE THE 'DRAFT

Comments | Sunday Mirror, Nov 30, 2008

MILLIONS of us will go into the red to pay for Christmas - and with banks busy hiking overdraft rates, the New Year could bring a painful financial hangover.

Even though the Bank of England base rate has been cut by 2.75 per cent in the past year, interest rates on overdrafts have continued to go up, with some banks increasing rates by as much as 7.31 per cent.

The rises couldn't come at a worse time. One in 12 people say they will make "heavy use" of their overdraft facility around Christmas and may exceed their agreed limit, according to the Alliance & Leicester.

And one in five believe they are more likely to go overdrawn this Christmas compared with last.

Michelle Slade, of Moneyfacts.co.uk, said: "The base rate has decreased significantly in the last year but Abbey, Barclays, Clydesdale, First Direct, HSBC, Nationwide, Norwich & Peterborough, Royal Bank of Scotland, Smile and Yorkshire Bank are all charging their customers more than this time last year."

And this isn't the only bad news. Charges for exceeding an agreed overdraft limit have risen by a massive 20 per cent in the past year, with the typical charge now pounds 30.

The increases come despite an investigation and court case by the Office of Fair Trading into the legality and justification of these fees.

The changes could affect as many as one in four adults, according to comparison website MoneyExpert.com.

Sean Gardner, director of MoneyExpert.com, said: "A pounds 30 charge isn't the Christmas present most of us are after and if you want to avoid these costs then watch your balance.

"Across the board borrowing is increasingly expensive and those customers using their overdraft need to be aware that in the majority of cases they'll pay a premium for this cash."

The advice for those who do go into the red regularly is to switch to an account with the lowest overdraft rate.

Alliance & Leicester charges zero per cent on overdrafts. with no charges for the first 12 months after opening an account.

After this, going overdrawn will cost you 50p a day, with the maximum monthly charge pounds 5 a month and no separate interest rate charge on top.

Michelle Slade added: "Many consumers stay with accounts with high overdraft rates because they think it is too much hassle to switch but, with all the major providers offering switcher services, the process can be done automatically."

So don't delay - if you're unhappy with your account then make switching an early New Year's resolution.