Regularly overdrafting is an expensive habit

Overdrawn on your current account: it is easy until the income is credited again. If you use it for a few days but do not let it become a habit, you will not have to spend that much money on it. But if it happens regularly and the bank account ends up deeply in the red, it is an expensive form of borrowing: a waste of money. Anyone who becomes aware of this tries to avoid overdrafts.

Expensive times: tight on cash

For many people, the period after the summer holidays is a time to catch their breath financially. Anyone who has been on holiday with the family knows: you quickly spend a little more money and more easily. With the new school year just starting, new costs are coming up: supplies for secondary school, a new bag, the parental contribution. New winter clothing and shoes are needed again. And before you know it, the holidays will be around the corner. Overdrafting your bank account seems easy to do if you are short on cash.

Being overdrawn on your checking account: tempting and easy

A quarter of people regularly overdraw their current account (Nibud). This is because they have a lot of expenses in a short time or, for example, after a large purchase. But most people have no idea what it costs to be overdrawn. Often a credit limit has been agreed, which is the maximum amount that the account holder may be overdrawn. This is possible if there is regular income. Then it is tempting to take advantage of it, as it is only for a short time. Moreover, in many cases the amounts involved are not very large.

What does it cost to be in the red?

Yet it remains expensive to do this: interest must be paid every month on the borrowed amount and that is an expensive form of borrowing. It can easily amount to tens of euros per year for the same checking account. The banks therefore earn very well from this. Below is an overview of what a number of banks charge in interest for overdrafts, the figures in the table apply (Source: Tros Radar, broadcast January 17, 2011):

ABN AMRO

20.3%

ASN Bank

12%

ING

17.7%

Rabobank

14.8%

SNS Bank

15%

Triodosbank

12%

Borrowing: preferably in a different form

Being overdrawn for a few days is of course not a disaster, it can just bridge the period until money is credited again. But if it has become more or less a habit to dive (deeply) into the red at the end of the month, there are ways to get out of this. And if you need to borrow money for a somewhat larger expense, for example, it is better to do so in the form of a personal loan or a revolving credit, or a short-term loan such as a flash loan. That is cheaper than being in the red.

How can you get rid of constantly being in the red?

  • Make sure the administration is in order
  • Check exactly what comes in each month and what the (average) costs are per month
  • Cut back if necessary: cancel subscriptions, buy cheaper groceries, look for other saving tips on the internet
  • If there is a savings account with a credit, use it to make a large purchase: interest paid on a savings account is much lower than the interest paid on an overdraft or a loan
  • Do not buy on installments from mail order companies and the like: the interest is usually very high
  • If possible, try to save some money for unexpected expenses