Millions of overdraft users ‘could benefit from new zero-interest buffer’
The buffer, for borrowing of up to £50, will be launched from Wednesday, Nationwide Building Society said.
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Your support makes all the difference.Britain’s biggest building society is introducing a new interest-free overdraft buffer for borrowing of up to £50, in time for Christmas.
From Wednesday, the buffer will apply to new and existing overdrafts on Nationwide Building Society’s three main current accounts: FlexPlus, FlexDirect and FlexAccount.
Nationwide will write to eligible customers notifying them of the change.
The society said around one in four of its overdraft users dip into the red by £50 or less each month, so the buffer means they would not pay interest in a typical month.
It said all its overdraft users who are eligible for the buffer will benefit, as those who go overdrawn by more than £50 will pay a little less in interest charges.
Most people use an overdraft occasionally, but if you are worried about your reliance on it then get in touch with your bank or building society
Millions of customers have an overdraft facility and could potentially benefit, Nationwide said. It declined to give a more precise figure.
Censuswide research for Nationwide indicates that the top reasons for going into an overdraft are: spending too much at Christmas (34%), household bills being higher than normal (31%), income not keeping up with rising bills (29%) and an unexpected expense (24%).
Some 2,000 people were surveyed across the UK in October.
Marta Edwards, head of current accounts at Nationwide Building Society, said: “Most people use an overdraft occasionally, but if you are worried about your reliance on it then get in touch with your bank or building society as they will have a range of support available.”
Depending on individual circumstances, some borrowers may find it more cost-effective to use alternatives to an overdraft, such as a credit card with a 0% interest period. Some people may also have savings they could turn to, rather than going into debt.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “It is somewhat inevitable for there to be consumers who will need to dip into their overdraft slightly to cover the festive splurge, so having the right bank account to avoid paying any sky-high overdraft charges is wise.”
Ms Springall highlighted an interest-free overdraft buffer of up to £250 offered by First Direct.
She continued: “There are also other bank accounts that offer up to £100 as a buffer, but many of these will charge a fee or may require minimum funding, so it’s worth weighing up any benefits to see if the account it suitable.
“Consumers who plan ahead could save a little bit each week to cover any additional costs over Christmas.”
Here are some tips from Nationwide to help people avoid slipping into the red:
1. Regularly monitor your account. A fifth (20%) of people surveyed for Nationwide said they went into their overdraft because they did not keep an eye on their spending.
2. Consider having separate accounts for bills and non-essential spending. Work out how much discretionary money you have left at the end of each month and consider putting this in a separate account to make it easier to budget.
3. Set up text alerts. An alert can be set up on your accounts to receive a text when you have dipped into the overdraft. This can prompt you to take action and move money from elsewhere to avoid overdraft charges.
4. Get into the savings habit. By steadily building up a pot of money, you have something you can dip into to cover unexpected bills or the costs of Christmas. Consider comparing savings accounts and the rates on offer to find one to suit your needs.