Most of us have a current account and many of these come with an overdraft facility. These will allow us to borrow money if we need to but they can be really expensive. This means that many people do shop around and may change their current account provider in order to find a better deal. It can be worth considering whether you should do the same thing. You will need to ask yourself a few questions first though.
- Do I use my overdraft? – if you do not use your overdraft facility at the moment then the cost of it is pretty much irrelevant. It can be nice to have some money to fall back on, should you ever need it but if you are not using it, then the cost will not matter. However, if it is something that you do use regularly then the cost will be much more relevant to you. You may even be overdrawn at the moment. If you are overdrawn, then switching accounts could be more difficult though, you may have to repay the overdraft before you can switch it over. You will need to check and find out, so that you know whether you will be able to move or not.
- Will I use an overdraft in the future? – it is also worth thinking about whether you are likely to borrow money using an overdraft in the future. It can be hard to predict what your finances might be like but it is worth having a go. Think about whether you feel that your financial situation might change. If you think things may get worse then there may be a chance that you will need to rely on your overdraft in the future and therefore you may decide that you might need to use it and therefore you want to make sure that you have one that has a good rate.
- Does my account have other benefits I need? – when you are thinking about whether you want to switch accounts you need to consider whether there is anything else you need form your current account as well as a cheaper overdraft. Some accounts will have a charge but you can get paid interest or have other benefits such as free insurance and that might be something that you will want to take advantage of. You may also get higher interest on associated savings accounts as a result of having a current account or things like this.Think about what you get from your account and what you use it for and make sure that you will get this from any that you are considering swapping to.
- Would switching encourage me to go overdrawn? – It is worth asking yourself whether the threat of high overdraft fees is what is motivating you not to get overdrawn and that if you switch to an account which is cheaper, then you may be more likely to get overdrawn. Just because it is cheaper does not mean that it is cheap or worth doing. However, if you think that the threat of high fees is what is preventing you going overdrawn, then you are probably better off staying as you are.
Many people get put off switching their current account because they think it will be too difficult. You will have to swap over the direct debits, standing orders and payments going in but your bank can help you with this. Talk to them about what you have to do and what they will do for you and you could feel that it will be worth the effort. You may feel that you will not really save enough money. It is worth calculating how much you do use your overdraft and how much that costs you If you look back over bank statements you should be able to see that information and therefore you will be able to work out how much it is costing you. You will then be able to compare that with how much you would pay if you were with a different bank. Remember that with an overdraft you are often charged a fee as well as interest and so you will have to include both when you are calculating the cost. Also note how much it would cost you if you had an unauthorised overdraft, i.e. went over your agreed overdraft limit. This can vary a lot between banks and it is more expensive than an arranged overdraft and so it is important to look at how much this will cost as well. Once you have gathered all of this information you will be in a position where you will be able to decide whether you think that you will save a significant amount of money to make it worth you switching your current account to a different provider.