Millions of current account holders falsely believe that they are unable to switch banks and benefit from better deals if they are in the red, according to new research carried out by BMRB for Alliance & Leicester.

17.5 million people – that’s 42% of all current account holders in Great Britain – believe they have to stay with their current bank once they are overdrawn. With some banks and building societies charging customers authorised overdraft rates of nearly 18%, the research reveals that this misconception could be costing the British public more than £190 million a year.

Overdrawn apathy

The survey reveals that nearly half (45%) of all current account holders use their overdraft facility with:

• 39% currently in the red.
• 32% who use their overdraft do not know how much they pay.
• 36% believe they pay less than 7.5%,

In reality, authorised overdrafts can cost up to 17.8% EAR and unauthorised rates up to 33.8% EAR. It is therefore worrying to learn that the majority of customers have little idea how much their overdraft facility costs them.

Saving to be made by switching

Alliance & Leicester’s Premier Current Account offers new customers a 0% overdraft for 12 months reverting to 6.9% on authorised and unauthorised overdrafts - a best buy on the High Street.

With a typical authorised overdraft of £500 for ten days each month, people paying 15.7% EAR (average overdraft rate with the Big 4 banks) and switching to an account that charges 6.9% EAR could make a saving averaging £14.47 pa.

Simon Ripton, Manager of Current Accounts at Alliance & Leicester commented:

“As our research shows, despite many people using their overdraft facility to manage the ups and downs in their finances, they are needlessly paying higher rates of interest.”

“Unlike mortgages, loans and credit cards, people do not shop around for the best deals on their current accounts and people wrongly think that they are locked into their current account if they are overdrawn and this is costing them dear.”