Dipped into your overdraft recently? You might have been better off with a payday loan

Hayley Kirton
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Taking that cash could cost you if it's coming out of your overdraft (Source: Getty)

Bad news for anybody who has gone into their overdraft recently – you might have been better off with a payday loan.

Research published today by consumer group Which? found charges from the big high street lenders could cost as much as 180 per cent of the amount borrowed.

Customers needing as little as £100 could find themselves forking out £156 more, or paying a rate which is seven-and-a-half times higher, than a payday loan company is allowed to charge.

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"It’s not right that people with a financial shortfall can be charged so much more by the big high street banks than they would by a payday loan company – especially if the money is borrowed over two monthly charging periods," said Vickie Sheriff, Which? director of campaigns and communications. "If banks can continue to set their own charges, then consumers will continue to be hit by exorbitant fees."

Of the bank accounts studied by Which?, NatWest Select Account was found to charge the highest if somebody were to dip into their overdraft for 30 days across two charging periods – typically a calendar month – with additional fees of around £180 for £100. Halifax Reward Current Account charged the most for 30 days across one charging period, with around £100 for the extra £100 borrowed.

"We encourage all of our customers to contact us if they are going to enter unarranged overdraft regardless of the amount or the length of time," said Natwest in response. "We offer a number of alternative solutions, such as putting an arranged overdraft in place, where the costs are considerably less."

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Halifax added: "Unplanned overdrafts are designed for occasional spend and the vast majority of our customers do not use them. We help by promoting several tools to make it easy for customers to stay on top of their finances and avoid using unplanned overdrafts."

Which? is now calling on the City watchdog to urgently review unarranged overdraft fees.

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Sheriff added: "The Financial Conduct Authority (FCA) must use its current review to cap these high charges and ensure consumers cannot be charged more for unarranged overdrafts than arranged overdrafts."

The FCA is currently running a call for input into high-cost short-term credit products, which will include a closer look at overdraft charges, and aims to publish its findings later this year. An FCA spokesperson added the regulator would welcome Which?'s input into this study, which will close for submissions on 15 February.

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