More high-income earners relying on overdrafts
The soaring cost of living has caused a 100% increase in overdraft borrowing among wealthy families, according to Experian.
Its latest research shows the number of high-income earners in their thirties and forties who are dependent on their overdraft has doubled since 2008, with one in three now relying on their overdrafts.
Some 47% in this group have also applied for extra credit in the past two years.
For the research those families classed as "high-income" had an average annual income of 72,648 or more.
Pressure on UK households
The level of consumer prices inflation rose again in July to 4.4% - over double the Bank of England’s target of 2% - and this is putting further pressure on the purse strings of UK households.
Soaring prices of energy, petrol and everyday basics have hit households hard and while many workers are facing pay freezes, household incomes are falling in real terms.
Peter Turner, managing director at Experian, says UK families often rely on their overdraft to get by, but that is not always the best option.
"Many of us choose to borrow, but it’s where you borrow from that makes all the difference," he says.
If you do need to borrow money, relying on your overdraft might not be the best option. Moneywise recommends you shop around and look for the best credit cards and personal loans on the market.
For a round-up of the top credit cards on the market check out our guide.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.