FINANCIAL PRODUCT

Product: Overdrafts Offerers: Banks Offer dates: Available now How they work: Overdrafts are a fact of many people’s lives, and it is costing them dearly. Many people acquire their overdraft habit at university but carry them on. There’s generally a setup fee of around $25 to create a facility and an ongoing fee each month for keeping the overdraft limit. At ANZ, for example, that ongoing fee is either $5 or 0.12 per cent of the overdraft limit, whichever is higher. It is lots of little slugs like that which add up to huge bank profits. What we like: Many people need a bit of leeway from the bank so they can meet unexpected costs. Overdrafts provide that flexibility. They can be particularly important for people who draw a lot of their income from commissions, which can be notoriously lumpy. What we don’t like: An overdraft is costly personal debt and in many cases it is a symptom of spending more than you earn and failing to budget. Personal debt is an emergency in anybody’s life. It locks a person into paying interest, not receiving it. Repeat that pattern for very long and a person is likely to end their working life with a much-reduced nest-egg. Hopefully not too many people are paying for overdrafts they never use. Conclusion: No longer needing an overdraft is one of those key moments in life, like getting mortgage free, or retiring. It’s the kind of day you look back on and think yourself a fool for not having managed earlier.