A monthly wage lasts just 17 days after payday for a quarter of bank customers in the UK, it was revealed in a survey by Thinkmoney.co.uk.
The survey, which involved 2000 current account holders from various banks, found that by the 17th day after being paid, 27% of these people are forced to go overdrawn with their bank account. By the following payday, it is thought that these people will be accruing interest on their current account, which prevents their overdraft from being used ‘for the right reasons’, says Thinkmoney.
A spokesman from the company said:[quote]An overdraft should be a safety net, there to help when something goes wrong. But it appears that for many people, being overdrawn has become the norm. In fact, many don’t regard it as debt, but it is.
Spending most of the month overdrawn is very worrying position to be in.”[/quote]
Thinkmoney’s survey also found that 21% of respondents were likely to dip into the overdraft just a week after payday, whilst 13% said they often rely on it a day after getting paid.
More than a third of bank customers overall said they would drop into their overdraft at some point during the calendar month, and 1% admitted that they spend the entire month being overdrawn.
Failing to manage one’s monthly salary appropriately can lead to a growing dependence on other forms of temporary income or benefits, such as payday loans or a government Budgeting Loan in the case of an emergency.
Accruing interest on an overdraft is never an ideal situation. But now, with banks changing the way that interest is calculated, customers are more vulnerable to even higher charges.
Overdraft interest was originally calculated using an equivalent annual rate (EAR), similar to the APR that is charged on other loan products.
Now however, banks are charging a simple ‘flat fee’ overdraft charge that can in some cases increase with every day a customer is overdrawn.
For example, Barclays bank recently announced this year that it will charge interest at a daily rate of 75p to £3 (depending on the type of account and how much a customer is overdrawn). This means that someone who enters their overdraft two weeks before payday, for instance, could owe £42 by the time their next payday arrives.
The age group most likely to go overdrawn in a typical calendar month, according to Thinkmoney, is 18 to 24 year olds. Around half of respondents within this age group said that they spend at least part of the month being overdrawn.