Half of young people would switch banks for a better overdraft as debt levels soar

More than half of young people say they would switch to a different bank if it offered a better or bigger overdraft, as levels of debt among the age group soar. 

Findings from Pay.UK, owner and operator of the Current Account Switch Service, said debt was becoming an 'increasingly important factor' in people's banking decisions, given that many UK consumers now have unsecured debt. 

A debt is unsecured if it is not tied to something you own, such as a property. Unsecured debt includes overdrafts, credit cards and most personal loans. 

Pay.UK found that 51 per cent of UK adults had unsecured debt, rising to 65 per cent of people aged between 25 and 34. 

It reported that 55 per cent of people aged between 25 and 34 said they would switch to a different bank account if they could get a better overdraft. 

Among adults aged between 18 and 24, some 49 per cent said they would consider switching bank accounts to track down a more favourable overdraft. 

Less than 18 per cent of people aged 55 or over surveyed said they would do so, however. 

More than half of young people would switch bank accounts to secure a better overdraft

An overdraft lets you borrow money via your current account. You will go into your overdraft if you spend more than the available balance in your account. 

So, if you have £1,000 in your current account but spend £1,100, you will be £100 overdrawn. 

About a quarter of 2,000 adults surveyed said worries about debts made them more likely to consider switching bank accounts. This number rose sharply to 48 per cent among 25 to 34-year-olds, the research showed. 

It also flagged that more people were turning to options outside of traditional banking providers to meet their money needs. 

Thirty-seven per cent of people Pay.UK surveyed said they would rather use buy now, pay later services than approach their bank or building society for support.

Thirty-four per cent of people said they would rather rely on a credit card than ask for more support from their banking provider. 

About one in five people used buy now, pay later services last year due to financial pressure, Pay.UK said. Sixteen per cent said they used an overdraft and a further 16 per cent said they had borrowed money from family or friends. 

More than 70 per cent of people aged between 25 and 34 said they had either used an overdraft, buy now, pay later or borrowed money from people they know last year while getting into debt, according to the findings.  

Nearly half of younger people surveyed said they did not think banks or building societies offered enough support to people struggling to manage their finances.  

John Dentry, product manager of the Current Account Switch Service at Pay.UK, said: 'Consumers' financial needs can change significantly throughout their lives, particularly during periods of financial pressure. 

'What this research shows is that many younger people are actively thinking about whether their bank account is providing the support and features they need, including access to overdrafts and tools that help them manage their finances effectively.'

Can you switch account if you're in your overdraft? 

Yes, if your new bank agrees to transfer your debt to your new account. 

You will need to confirm this with them ahead of switching your account.  

They may also offer you a lower overdraft limit, or refuse your request altogether. 

If they refuse to let you carry over your overdraft and you still want to switch, your old bank will issue a demand for the outstanding amount. 

Dentry added: 'While debt concerns can sometimes act as a barrier to switching, consumers should be aware that being overdrawn does not automatically prevent them from moving to a different account. 

'Just make sure you agree an overdraft with your new banking provider before requesting a switch.'

Why is overdraft use so high? 

People's finances are under pressure. inflation rose to 3.1 per cent in the year to August after petrol, diesel and airfares stoked price growth.

Inflation accelerated from 2.9 per cent in the year to July, according to the Office for National Statistics.

Petrol and diesel prices rose further as the war in the Middle East continued to disrupt global oil supplies. The cost of flying also increased during the key month for summer getaways.

Inflation has moved further away from the Bank of England's 2 per cent target.

 Interest rate rises are expected later this year, spelling more bad news for many mortgage borrowers but better news for savers. 

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