Nationwide makes big change to overdrafts adding interest-free buffer for Christmas – how does it compare to others?
BRITAIN'S biggest building society is introducing a new interest-free overdraft buffer for borrowing just in time for Christmas.
From Wednesday, a new £50 interest-free buffer will apply to new and existing overdrafts on Nationwide three main current accounts: FlexPlus, FlexDirect, and FlexAccount.
An overdraft enables you to borrow money through your current account if you run out of cash.
You can set up an arranged overdraft with your bank, allowing you to borrow up to a pre-agreed limit.
Typically, there's a fee for going overdrawn, which increases the more you borrow.
However, some banks offer interest-free buffers, meaning they won't charge interest until your borrowing exceeds a certain amount.
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Currently, Nationwide charges interest on any overdraft balances above 1p.
This means that if you're overdrawn, you'll start paying interest at 39.9% EAR.
However, starting Wednesday, it will introduce a buffer of £50, so customers will only start paying interest at 39.9% EAR on balances above £50.01.
The society said 25% of its overdraft customers dip into the red by £50 or less each month, so the buffer means those people will now not pay interest in a typical month.
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Nationwide said that it would write to eligible customers to notify them of the change.
Marta Edwards, head of current accounts at Nationwide, 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."
While Nationwide's new buffer will be welcome news for millions of borrowers, some lenders provide even more generous terms.
First Direct offers the highest standard interest-free buffer at £250, followed closely by AIB (Allied Irish Bank) at £200.
HSBC and Barclays also provide a £25 and £15 interest-free buffer, respectively, for those with a standard fee-free current account.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, added: "There are also other bank accounts that offer up to £500 as a buffer, but many of these will charge a fee or may require minimum funding."
For instance, HSBC and Barclays Premier bank accounts provide interest-free buffers worth £500.
However, to qualify for these accounts, you'll need an income of at least £75,000 a year.
In contrast, NatWest, RBS, TSB, Bank of Scotland, Halifax, and Lloyds Bank do not offer a standard interest-free buffer, although certain account types may qualify for a buffer ranging from £50 to £100.
Other banks, including Danske Bank, Ulster Bank, Santander, Co-op Bank, Metro Bank, and Virgin Money, do not offer any interest-free buffer as standard.
THINK BEFORE YOU BORROW
BORROWING sounds like a simple way to help pay bills – but beware falling into debt you cannot pay back.
It's always vital to ask yourself if you actually need to borrow before committing to a new credit card, personal loan or overdraft.
If you cannot afford to pay off debt you already have, you should avoid at all costs taking on any more.
What are the alternatives to overdrafts?
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.
Ideally, you will have built up an emergency fund which you can dip into — but sometimes that just isn’t possible.
Before you borrow cash, do your research and find out the cheapest option for you.
It is also worth considering a loan from a credit union.
They are a much cheaper alternative to payday loans, and some can even get cash to you on the same day.
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The interest rate offered on these loans is substantially lower than that offered on a credit card or overdraft.
Interest ranges from 12.7 per cent APR (one per cent a month) to a maximum capped rate of 42.6 per cent APR (3.5 per cent a month).
GET FREE DEBT HELP
There are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.