How to avoid overdraft fees



Do you use the overdraft facility on your bank account?

If you do, you are not alone. Recent research from a leading financial website has found that millions of people in the UK use their overdraft every year, paying tens of millions of pounds in charges and interest.

With a new financial product on the block -- prepaid credit cards -- experts are encouraging more people to use prepaid credit cards as a cheaper alternative to a bank overdraft.

18 million Brits used their overdraft in the last year
The website research found that around 5 million people in the UK are permanently overdrawn, with a further 18 million using overdrafts in the past year alone. With overdrafts often charging high rates of interest as well as authorisation fees, it can be an expensive way to manage your finances.

Similarly, using credit cards can be a costly way of paying for goods and services. Even great value products can charge interest of 10-15 per cent, making them expensive to use. That's why consumers are being encouraged to use prepaid credit cards instead.

Prepaid credit cards ideal for travel and for keeping control of finances
A prepaid card allows you to load up your card with cash from your bank account. You then use the card to pay for goods and services. You can only spend what you load onto your card and so you can never overdraw your account or incur additional charges.

This also makes them perfect for use as a travel credit card as you can load up the card before you leave for your holiday. You can then use the card at your destination to buy goods or services or to withdraw local currency at an ATM.

So, if you're one of the five million people who stay in their overdraft every year, prepaid cards could offer a handy and cheap alternative.

See related: Prepaid cards can offset travel costs; Prepaid card program rolls out for students

Published: 15 April 2011