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Planning to use a bank overdraft through Christmas? Think again and you could save more than £100

9th November 2015

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Andrew Hagger of Moneycomms.co.uk compares the cost of bank overdrafts and looks at a cheaper way to borrow over the festive and New Year period…

With the Christmas spending season fast approaching many people will automatically turn to their bank for an overdraft to help manage their extra expenditure, but there is a cheaper alternative.

With many banks charging daily or monthly fees even for agreed overdrafts, the costs can soon mount up and vary widely between providers.

A credit card money transfer is still relatively unknown but it offers a much cheaper way to boost your bank balance and can be arranged at short notice.

Money transfers are still quite rare amongst credit card providers with MBNA and Virgin Money the main players offering this functionality to new customers.

Barclaycard and Tesco Bank offer it too but only to select existing customers.

A Money Transfer allows the card holder to transfer money from their credit card direct to their current account within one working day.

Up until recently Money Transfer promotions tended to be 0% interest but were quite restrictive as you had to make your transfer within the first 60 or 90 days subject to a one off MT fee of up to 4% of the sum transferred.

Any transfers after the short promotional window are charged at a standard rate of around 18% -20% APR, so really after the introductory period the Money Transfer costs made it far less attractive.

However the recently launched Everyday Plus Card from MBNA overcomes this issue and offers a long term low rate (no introductory deal just 7.4% per annum on-going) Money Transfer facility with no MT fee – thus you can use it in the same way as you would an overdraft.

It means that you are in control and can switch funds between your card and bank account as often as you need at a competitive rate and without any additional fees or restrictions.

The difference in cost savings compared with a traditional bank overdraft are more than you would think and make this option worth considering.

For example compared with a £2,500, 6 week overdraft with Halifax this money transfer could save you more than £62 and with a Barclays Bank overdraft  an eye watering £104.72.

I know some people will suggest a 0% purchase card but do you really want to still be paying for Christmas next summer or beyond?

Also as much as the comparison sites love it when customers switch and ditch their plastic, the reality is that a lot of people simply cannot be bothered and prefer to keep the same card for the longer term.

Possible cost savings based on £750 for 3 weeks and £2,500 for 6 weeks:

Cost of borrowing £750 for 3 weeks (21 days)

Lender

Interest/fees

Actual cost

Money transfer – MBNA Everyday Plus Credit Card 7.4% PA

£3.19

Authorised overdraft – First Direct 15.9% EAR (first £250 free)

£4.27

Authorised overdraft – HSBC Advance Interest 17.90% EAR

£7.15

Authorised overdraft – Nationwide BS FlexAccount Interest 18.90% EAR

£7.52

Authorised overdraft – Clydesdale Bank £6 fee plus 9.90% EAR

£10.09

Authorised overdraft – NatWest Select £6 fee plus 19.89% EAR

£13.88

Authorised overdraft – TSB Classic Plus £6 fee plus 19.94% EAR (first £25 free)

£13.66

Authorised overdraft – Lloyds Bank Club Lloyds £6 fee plus 19.94% EAR (first £100 free)

£12.87

Authorised overdraft – Barclays 75 pence per day

£15.75

Authorised overdraft – Halifax Reward £1 per day

£21.00

Authorised overdraft – Santander123 £1 per day

£21.00

Research and calculations – Moneycomms.co.uk  05.11.2015

Cost of borrowing £2500 for 6 weeks (42 days)

Lender

Charging tariff

Actual cost

Extra cost

Money transfer – MBNA Everyday Plus Credit Card 7.4% PA £21.28 N/A
Authorised overdraft – First Direct 15.9% EAR (first £250 free) £38.45

£17.17

Authorised overdraft – Clydesdale Bank £6 fee pm plus 9.90% EAR £39.27

£17.99

Authorised overdraft – Santander123 £1 per day £42.00

£20.72

Authorised overdraft – HSBC Advance 17.90% EAR £47.70

£26.42

Authorised overdraft – Nationwide BS FlexAccount 18.90% EAR £50.16

£28.88

Authorised overdraft – Lloyds Bank Club Lloyds £6 fee pm plus19.94% EAR(£100 free) £62.70

£41.42

Authorised overdraft – TSB Classic Plus £6 fee pm plus 19.94% EAR(first £25 free) £64.29

£43.01

Authorised overdraft – NatWest Select £6 fee pm plus 19.89% EAR £64.59

£43.31

Authorised overdraft – Halifax Reward £2 per day £84.00

£62.72

Authorised overdraft – Barclays £3 per day £126.00

£104.72

Research and calculations – Moneycomms.co.uk  05.11.2015

 

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