Most people need a little extra financial support from time to time. For many, overdrafts can be used as a short-term cash flow for when their bank balance falls below zero. But this often lead to a series of uneasy questions: What’s my limit? When will I be charged? Where did that fee come from? Research from price comparison site uSwitch found that between 2016 and 2017, one in eight people in the UK had dipped into their unarranged overdraft, costing an average of £33 each time. The combined figure for unarranged overdraft fees is £300 million.
Starling Bank offers fair and easy to use overdrafts as part of its mobile-only personal accounts. Once a customer has been approved for an overdraft, they can choose whether to accept it or not and set their own limit with the flexible in-app slider. Starling charge 15% EAR (variable) on what the customer actually uses, not on their maximum limit.
EAR stands for the Equivalent Annual Rate - the interest customers would pay over a year if they remained overdrawn. It’s a useful way of comparing interest rates from different providers. Importantly, an EAR does not include the fees that some banks may charge in addition to interest. Starling does not charge any such additional fees and has a maximum monthly charge of £2 if a customer goes into an unarranged overdraft.
Some providers charge flat fees which may seem simpler but are not always cheaper. For example, overdrafts with a 50p per day charge would mean that the customer would be charged £15.50 if they were overdrawn by £100 for 31 days. If a Starling customer is overdrawn £100 for 31 days, they will pay £1.27 in interest for this service.
When someone applies for an account with Starling, the bank completes a few checks to determine if the customer is eligible for an overdraft and to set an approved limit. The customer can choose to accept this overdraft and can then decide on the amount up to the limit determined by Starling. This puts the customer in control of their limit. Minimum overdrafts offered are £250 and maximum overdrafts are £5000.
Further features of a mobile-only current account with Starling include real-time notifications, monthly breakdown of spend into categories such as groceries or travel and the ability to lock the MasterCard debit card if lost or stolen straight from the app. Find out more about Starling Bank at www.starlingbank.com
