Unauthorised overdraft fees can be huge – so here’s some tips to avoid a financial chill…

Last year, the Competition and Markets Authority (CMA) said that lenders should introduce a cap on the maximum monthly charge they make for unauthorised overdrafts. The trouble is their report left it up to the lenders to set their own cap. With the CMA finding that the banks make over £1 billion a year out of overdraft charges it’s no wonder that even these caps are being set at £90 to £100 a month by the high street lenders.

With interest and charges to pay for unauthorised borrowing making your money problems worse, here are some tips to help you manage an overdraft on your bank account.

Monitor your money

Okay, so it’s not exciting, but most people can easily go overdrawn thanks to that “free money” device – the ATM or hole-in-the-wall machine. Before you hit that tempting “£50” button, get an on-screen balance advice. Maybe it’s better to wait until after payday this month, or withdraw a bit less?

Another good way to keep in control is to download your bank’s secure banking app to your phone. This should allow you to get a quick and up to date balance anytime, anywhere. Armed with this information you can manage your spending better and hopefully avoid a stinging penalty charge.

Credit not debit?

If you tend to run out of money before the end of the month, then consider using the interest-free credit period on your credit card for purchases, rather than your debit card. This does require you to be disciplined and to pay off the card in full, but most cards will allow you to change the repayment date.

As your employer is unlikely to pay you any sooner, by setting the card payment date to the week after payday, you can use the credit card as an interest free loan to tide you over. Be warned, though, this only works if you either pay the card off in full. Don’t fall into the trap of increasing your credit card debts to avoid overdraft charges, and building up a card bill you eventually can’t afford.

It’s my first offence

If your account’s been run well previously and you’ve just had a one-off blip that’s incurred some charges, it’s worth calling your bank and seeing if you can ask them to waive the charges this once because of your previous good behaviour.

There’s no guarantee this will work (you have breached the conditions of your account, so they are entitled to charge) but you might find they will let you off for a first offence. This is only going to work once though, if at all, so if you go overdrawn again next month, all bets are off for this working a second time.

Authorise it

If you know that you’re going to have to dip into overdraft more than once while your circumstances adjust it might be worth applying for an authorised overdraft, particularly if you only need to have a buffer of £100 or £200. If accepted (and it’s subject to status, so a reasonable credit history will help) then you will no longer get charged the penalty fees associated with unauthorised withdrawals. You will have to pay interest on what you borrow in this way, and most lenders also charge a fixed “usage” fee. However these two combined will always be a lot less than paying the unauthorised borrowing charges,