TWO major banks are offering customers a larger interest-free overdraft to help them through the cost of living crisis.
But some might want a buffer too and an overdraft can come in handy.
HSBC is already offering some customers interest-free extensions on their overdrafts and now another major bank has joined them.
First Direct is the latest bank to offer customers on its 1st Account current account an interest-free overdraft extension.
Those eligible will be able to get an overdraft of up to £500 without paying any interest.
Before, customers could only get the first £250 of their overdraft interest-free.
Customers will only be eligible if they already have an arranged overdraft over £250.
They shouldn’t apply if First Direct has already agreed not to charge interest on their 1st Account for another reason or they have an account with a negotiated rate.
The temporary support is available for 12 months after which overdrafts will go back to standard interest charges.
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Anyone who chooses to get the £500 interest-free overdraft will have to pay 39.9% EAR if they go over that amount.
Without the support, First Direct charges the same level of interest on any overdraft balances above £250.
Eligible customers are currently being contacted and if they want to apply they can on First Direct’s website.
The application deadline is March 31, 2023.
Lloyd Robson, head of banking and proposition at First Direct, said: “We are committed to being there for our customers and provide support in the face of rising costs.
“We know that with Christmas around the corner, customers are facing what is usually the most expensive time of the year, and an interest-free overdraft can help with any unexpected expenses at a time where budgets are already stretched.”
The bank is offering thousands of customers the opportunity to extend their interest-free overdraft limit from £25 to £500.
The borrowing will be available to use for a 12-month period from the date of extension.
Customers can apply for the extension online even if they don’t have mobile banking.
The overdraft support is available for customers with any of the following accounts:
- Bank account
- Advance account
- Bank account pay monthly
- Current account
HSBC Premier customers are excluded from the support.
Plus, only those who currently hold an overdraft with the bank can apply for an interest-free extension.
HSBC normally charges 39.9% EAR interest on any overdraft balances over £25.
If customers opt in to the interest-free extension they’ll pay the same interest level of over £500.
Natwest and Barclays both said they weren’t offering interest-free overdraft extensions currently.
A Nationwide spokesperson said it was proactively contacting customers who regularly use their overdrafts over prolonged periods to put them on six-month interest-free periods.
Is it worth getting an overdraft?
An overdraft can be useful to tie you over if you need to buy something in an emergency or you just want a bit of extra cash.
They can provide a safety net as well in case of any unexpected costs.
But you should always remember you’re getting yourself into debt by using one and it can be hard to get out of it once you’re in it.
They usually come with high borrowing fees too and can be tricky to pay off unless you come across an inheritance or get a pay rise.
How else can I borrow money?
Using a credit card might be a better option than an overdraft as they can provide lower rates.
Some banks and building societies offer balance transfer cards too which offer interest-free periods on borrowing.
These types of credit cards allow you to move over more expensive debts you already owe onto a new card, and you don’t have to pay interest on this amount for a set period.
But bear in mind these types of low-interest credit cards are usually only offered to people with a good credit score.
Ask yourself if you actually have to borrow money though.
If you can get help from your family or friends instead, that might be a cheaper option.
You might be able to get a budgeting loan if you’ve been on Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance or Pension Credit for the past six months.
They can help you pay for a number of things including furniture or household items, clothes or rent.