Five million Brits ‘permanently overdrawn’ as families struggle with cost of living
By Becky Barrow
Around five million people are ‘permanently overdrawn’ after losing control of their finances, research reveals today.
The research highlights the financial misery of hard-working families whose salaries are too low to keep up with the crippling cost of living.
At this level, it means one in ten adults are totally reliant on their overdraft, according to the ‘Britain in the Red’ report from the comparison website Moneysupermarket.com.
Their finances are so stretched that their current account does not even go in the black on pay day, according to the report which looked at authorised, not unauthorised, overdrafts.
A further 12 per cent of adults use their overdraft ‘five times or more’ every year, although they are not permanently overdrawn.
Yesterday the report’s author sounded the alarm that the number of debt-ridden Britons could soar over the next year.
Many are desperate to stop relying on their overdraft, but their finances are being crippled by a pay freeze or pay cut at work, or redundancy.
Two-thirds of workers in the private sector were hit by a pay freeze last year, with many braced for a second one this year.
To make matters worse, the cost of living has jumped sharply, with the rate of inflation trebling from 1.1 per cent in September to 3.5 per cent today.
Kevin Mountford, head of banking at Moneysupermarket.com, said: ‘With rising inflation, it is going to be difficult for many to break the habit of living in the red.
‘It may be that more people will fall back into this position as living costs increase.’
A separate report warns of the rising cost of living in the red as banks and building societies hike their overdraft rates, with the worst offenders charging up to 20 per cent.
Over the last two years, the average rate on an authorised overdraft has jumped from 13.85 per cent to 15.32 per cent, according to the financial information firm Moneynet.
Earlier this month, Barclays hiked the rate on seven of its accounts by up to five percentage points.
Andrew Hagger, from Moneynet, said : ‘It is no surprise that many people are so disillusioned with financial services providers in the UK. ‘Savings rates are falling, but the cost of loans, credits cards and overdrafts are heading in the opposite direction.’
One in four Britons admit their finances are so dire that they have less than £100 in their current account or an instant access savings account, according to the insurer Aviva.