It's all too easy to end up dipping into the red. You spend a little too much one month, a bill hits your account at the wrong time, or you lose track of your balance and wham! Suddenly your bank is slapping on charges of £5 or £10 a day, even if you only went slightly overdrawn. Their charges can be up to 10 times more expensive than a payday loan. Banks earn an astonishing £2.4 billion a year from overdraft charges, which helps fund free banking for those who stay in the black.

City watchdog the Financial Conduct Authority is clamping down on rip-off overdraft charges, but its new rules will not come into force until April 2020. If you are in danger of going overdrawn you need to take action today.

These days you can monitor every penny that comes in and out of your account through online banking or a mobile phone app. 

Many banks let you set up text alerts to warn if your balance is running low. 

You know those boring letters your bank sends, with lots of dreary small print? Read them!

They may be writing to explain changes to your overdraft limit or penalty charges. If you have an interest-free overdraft make sure you know your limit and don’t exceed it.

Banks and building societies don't like nasty surprises. If you can’t avoid slipping into the red, always warm them in advance.

You will typically pay a lot less for an arranged or authorised overdraft, than an unplanned or unarranged one.

If you are hit by an overdraft charge, call your bank immediately and explain why you went into the red. They might waive the charge, at least the first time.
 

Some accounts will let you go £250 or £500 in the red without paying any interest or penalties. Or they may reduce the charges, so you pay, say, 50p a day instead of £5.

You don't want to make a habit of it, though, because once you breach maximum limits you may still face punitive daily charges or APRs of up to 18.9%.

You may be able to switch bank even if you are overdrawn, using the Seven Day Switching Service. However, it is up to the new bank to decide whether to accept you and factors such as your credit score will guide its decision.

An overdraft should only ever be an emergency option for short-term funds. If you find yourself regularly going into the red, you need to find a long-term solution. 

For example, if you have any savings, use them to clear your overdraft. Your cash may earn just 1% or so on deposit, but your overdraft could charge between 15% and 20%.

In the longer run, you need to either boost your income or cut back on your expenses, or ideally, both. If debt is a serious problem, seek free expert advice from a charity such as Citizens Advice, National Debtline or StepChange Debt Charity.