Millions of people are charged expensive rates for being in their overdraft - but it may be possible to reclaim thousands of pounds back from your bank.
An overdraft lets you borrow money through your current account, so it’s a form of debt as it needs to be repaid. You go into your overdraft when a transaction is authorised but there isn’t enough money in your account. There are two different types of overdrafts.
An authorised overdraft is where you've agreed a limit with your bank and can spend money up to that threshold. An unauthorised overdraft is where you don’t have an arrange limit and you’ve spent more than you have in your bank account, or if you’ve gone over your agreed limit.
The interest charged on overdrafts can be above 40% APR on many accounts - so it is an expensive way to borrow. According to research by YouGov for The Sun, there is currently £2.7billion owed to banks in fees. If you've been stuck in a cycle of not being able to clear your overdraft, as new charges are constantly added on top, you could be able to claim back substantial amounts.
In a guide published on Martin Lewis' MoneySavingExpert.com website, the team writes: "This is very common for those with larger reclaims, and is often the reason why some people are being paid back many £1,000s."
Martin Lewis’ MSE website shares tip to get free £175 and 7% interest on savings
How to claim back bank charges
If being in your overdraft has put you in financial difficulty, or you're persistently in your overdraft and struggling to pay it off, contact your bank to ask them to review the charges you've received. You may also be entitled to complain if the charges were disproportionate or too expensive.
Your bank may decide to refund some or all of the charges. It may be that they say this money must be used to pay off what you owe. Another option could be that your bank decides to help by setting up an interest-free repayment plan to help you clear your debt.
If your bank does not agree to help you, or you're unhappy with the outcome, you contact the free Financial Ombudsman Service after eight weeks from when you first sent your initial complaint. If you're looking for ways to cut your overdraft costs, talk to your bank about seeing if you're able to get a 0% overdraft.
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