Unauthorised overdraft charges can cost consumers more than payday loans, according to research from an online current account specialist

 
Mark Sands
Follow Mark
Dutch Euro Coins Readied for Distribution
Should banks face a mandatory cap on how much they can charge for overdrafts? (Source: Getty)

Overdraft fees can cost as much as five times more than a pay-day loan according to figures from digital current account provider Ffrees.

Borrowing £100 for a month on a short term loan can incur charges of as much as £20, but taking the same amount from an unauthorised overdraft could see consumers stung for £100, Ffrees found.

It comes after the Competition and Markets Authority issued final recommendations asking banks to implement their own caps on overdraft fees.

The CMA also asked banks to publish those limits, so that customers can switch to a better deal where possible.

Read More: Four things you need to know about the CMA retail banking report

Ffrees chief executive Alex Letts said that the firm's research showed the 40 per cent of people expected their overdraft to be the cheapest options for unsecured credit.

“In fact it is quite the reverse,” Letts said.

Following the CMA report, Labour MP and Treasury Select Committee member Rachel Reeves has since written to the Financial Conduct Authority (FCA) to demand the regulator steps in to set its own cap.

“To make sure millions of people get a better deal the FCA must now step in and take the necessary steps to protect the most financially vulnerable from rip-off overdraft charges, as it did with payday lenders,” Reeves said.

Read More: 85 per cent say get rid of unauthorised overdrafts

UNAUTHORISED OVERDRAFTS

The cost of borrowing £100 for a month

The % cost of borrowing £100 for a month

Per annum fixed rate

Halifax Reward Current Account

£100.00

100%

1200.00%

Santander 123 Account

£95.00

95%

1140.00%

Nationwide FlexDirect

£60.00

60%

720.00%

NatWest Select Account

£96.00

96%

1152.00%

Lloyds Classic Account

£86.00

86%

1032.00%

TSB Classic Plus Account

£87.53

87.53%

1050.36%

PAYDAY LOANS

The cost of borrowing £100 for a month

The % cost of borrowing £100 for a month

Per annum fixed rate

Wonga.com

£24.00

24%

292.00%

The Money Shop

£19.20

19.2%

233.60%

Payday UK

£24.00

24%

292.00%

Quickquid

£24.00

24%

292.00%

Cash Lady

£24.00

24%

292.00%

Related articles