In recent months, many major news sources have reported that the unauthorised overdraft option at some high street banks can cost up to four times more than taking out a payday loan! While many people assume that a payday loan is the more expensive option, research now shows that banks are taking advantage of this incorrect assumption and charging clients massive fees.


The Telegraph has reported that the Royal Bank of Scotland customers face costs of £90 for the privilege of borrowing £100 for 28 days, while customers of Lloyds, HSBC and TSB come in a close second  paying £80 for the same service. These fees have been called exorbitant by consumer watchdog Which?; their policy director Alex Neill has stated that these “punitive unauthorised overdraft charges that cause significant harm to some of the most vulnerable customers.”

How to avoid these costs

Whether you have recently been stung by these high charges on an unarranged overdraft, or you simply want to avoid this ever happening to you, good financial planning can help you to avoid nasty surprise charges. Here are some steps that you can take to prevent falling into your unarranged overdraft and incurring exorbitant bank charges.

  • Have a look at your current direct debits
    Now is the time to scrutinise your chequing account and carefully assess all of your direct debits and standing orders. Did you sign up for snack delivery service/ gym membership/ audio book subscription that you no longer use or need but are still paying for? Maybe you have some other payments being taken from your account each month that are not necessary – identify these and cut them out.
  • Swap a night out for a night in
    You already know that a night out on the town can be hugely expensive, but do you really want to say goodbye to all of the fun and memories it will create? Thankfully, you don’t have to. By inviting your mates around for a gathering or potluck dinner party you can dine on delicious food, play laugh out loud games and spend time with your favourite people, all for a fraction of the cost.
  • Contact your utilities providers
    Sit down and assess all of your current utilities, such as mobile, electricity, gas, internet and water. Are you getting the best rates on the market? If not, contact your providers and tell them that you are unsatisfied with their rates and that you are thinking about switching companies. This will often encourage them to offer you better rates. If they don’t? Call their bluff and make the switch.
  • Check your account on a daily basis
    Do you find that you fall into your unarranged overdraft each month without realising it? This can be a very dangerous cycle – you need to stay on top of your money in/ money out and check your balance every day. Then, if you need to use an unarranged overdraft, consider if it is cheaper to get a short term loan.